Hubert Humphrey said, and I quote him, "Freedom is hammered out on the anvil of discussion, dissent and debate," end quote. Today the Finance Committee holds the first of three roundtable discussions. We hope that these discussions might be the anvil on which we hammer out health care reform.

The committee has spent a significant amount of time laying the groundwork for comprehensive health reform. In the past year, we've held a dozen hearings, held a daylong health reform summit just across the street at the Library of Congress. Now the time for action approaches.

These roundtable discussions will preview many of the policies that the committee will consider in its June markup. We will follow up today's roundtable on delivery system reform with another on expanding health coverage to all Americans on May 5th. And then we'll have our third roundtable on financing health reform on May 14th.

Why is delivery system reform such a critical part of comprehensive health reform? Because our current system falls short. It falls short in terms of the value that we get from the dollars that we spend. We spend more than any other country in the world, yet the U.S. health system scores 65 out of 100 on indicators of health outcomes, quality, access, equity and efficiency. And we know from previous research that adults receive recommended care only about half of the time in our country.

We have the opportunity to modernize our outdated payment systems and today's payment systems encourage delivery of more care rather than better care. We have the opportunity to improve quality. We can encourage care and coordination. We can promote integrated patient- centered delivery of health care.

Each of our participants brings an important voice to the discussion. They are experts or stakeholders or both. Among our guests are folks from the hospital and physician communities. We have consumer and business representatives. We have voices for chronic care management, current and former government officials, and experts at health care, fraud and abuse.

Forgive me for not taking the time to introduce each person. We have distributed a biographical sketch and a brief statement for each participant. Before today's session, we gave each participant some questions to help start our dialogue, and, beyond that, I anticipate a fruitful discussion. So let's get started with our discussion. Let's start hamming out health care reform.

I personally believe that this is a terrific, wonderful opportunity that we have, not only in the health care community but also in America. Not many times like this pass by, and I think it's very important -- it's exciting, in fact -- that we have the opportunity here to come together and to come up with health care delivery that makes sense for Americans, so more Americans have higher-quality health care at an affordable cost and access to our health care system in a way that we all know that it should be.

We also must remind ourselves that if we don't act now, that is, this year, the consequences will be dire. The alternative to not passing significant health care reform is dramatically increased cost in health care for consumers, for business, for governments, and it will be very difficult later on to pass the kind of health care reform that we know is needed. It will be harder to do that later on. So we have a terrific opportunity now.

It's going to take a little work, but anything worthwhile takes a little bit of work. And I just feel very, very good and very excited that the time has now come, the stars are aligned, where we're going to do meaningful health care reform in America. And today is going to mark the beginning of that effort and you are all part of it. And thank you so much for being here today to help us move along that path.

Now I'd like to turn to my partner here, Senator Grassley.

SEN. CHARLES GRASSLEY (R-IA): Thank you, Mr. Chairman.

And thanks to all of you who are going to participate today, as well as the members who are going to have to spend so much time on this issue over the next two or three months as we work to put this bill together. This is the toughest issue and most needed issue that Senator Baucus and I have ever been involved in. And it's not just talking about health care, it's talking about things that affect 16 percent or 17 percent of our gross national product.

Most everybody agrees that our health care system is not performing as efficiently as it should. We have escalating costs, an inefficient delivery system and 47 million people lacking health insurance. We need to make significant improvements in our delivery system and we must make these reforms in a fiscally responsible way.

A job this big and this important requires everybody to be working together. During the last year, the Finance Committee has held a series of hearings on health care reform. We have heard many witnesses tell us what's wrong with the system and how they believe health care delivery can be improved.

Indeed, some health care providers deliver high-quality care at lower cost. We want to learn from people who are doing things well, take the best ideas and apply them where we can.

Each and every one of you plays an important role in the health care system. If we're to succeed in making real changes that benefit millions of Americans, all of us are going to have to listen and consider many ideas. Now is the time for innovation and for reform.

I urge all of us to roll up our sleeves and help us figure out how to make these proposals work. Everyone will have to be willing to recognize strengths, improve upon weaknesses and find common ground.

I'm very appreciative that all of you have come here today to help with this process. Working together, we can make a difference and we can improve our health care system.

Thank you.

SEN. BAUCUS: Thank you, Senator.

In an effort to ensure the most productive conversation, I urge all my colleagues -- all of us -- and panelists to be quite brief. There are many of us here and there's not a lot of time. So I urge each of us to get straight to the point, get straight to the heart of the matter in your comments so we can be most productive.

Mr. John Iglehart will moderate. We discussed this in advance, John and I. The thought is that John might give a few ground rules, then he'll begin to ask questions of panelists. You all have questions in advance. Anyway, the thought is that senators could then jump in any time they want. But I'd ask senators and panelists who wish to speak, just raise your hand and John will then recognize you.

And, again, let's be brief in our comments and if I personally think that somebody's speaking a little bit too much, you'll hear this little sound. (Sounds gavel.) That means it's time to cut off. Okay, thanks a lot.

We're very honored to have John here. John moderated an earlier discussion over at the Library of Congress and did such a great job, we thought we'd invite him back.

So John, thank you very much.

JOHN IGLEHART (editor, Health Affairs): Thank you, Senator Baucus.

The panelists, too, given my position on the table here, if you do have a comment or a question you'd like to make, if you'd put your ID cards on the vertical position I'd be able to see that a little better than if not. And, of course, I'll entertain questions from senators or comments any time they raise their hand.

We will begin questions with Dr. Glenn Steele, who is the CEO of the Geisinger Health System in Pennsylvania.

And the question I would ask him, or the comment I would start with, anyway, is that Geisinger Health System nationally has been recognized as an innovative system that has tried a number of things to focus on improving quality, increasing the efficiency of its plan and the like.

And given that, Dr. Steele, the first question I would ask you is as the Congress works on health care reform, what are the key lessons that the Congress should take away from the Geisinger experience?

DR. STEELE: Thanks. First of all, it's an honor to be here. I'm privileged to be a part of this august group.

And I think the Geisinger experience is a remarkable way of framing the issue. We are able to take our insurance leadership and we're able to take our clinical leadership, the docs and the nurses, and focus on the patient groups that we think get the least good care. This would be the chronic disease patients. This would be the patients with the greatest variation for hospital-based therapy. It would be the end-of-life patients. And what we start with in the discussion, since we're this integrated health system insurance and provider, is what is the end result we'd like to get with that group of patients? How would we like to go from where we are now to where we want to be? And then we back out from that the correct incentives.

So we don't start with a negotiation that's based on getting more units of pay for a particular piece of work. What we start with is where do we want the patients ideally to be in three or five years? And then how do we get the reimbursement aligned throughout our doctor group, throughout our doctors and the hospitals, to get there? And I think what we've shown -- and, again, the question is, is it scalable, is it "generalizable" to other markets and other, you know, nonintegrated systems.

But what we've shown, John, is that when you increase quality for these groups of high-utilizing patients, you're also decreasing cost. So increased quality and decreased cost actually will cohabitate. So that would be my answer.

MR. IGLEHART: Let me follow up and ask you: Many of your patients in some of your system are located in rural areas in Pennsylvania. What are the challenges presented in terms of care coordination, more efficient delivery, when it comes to serving patients in rural settings?

DR. STEELE: Well, the obvious issue is access to primary care, access to a series of small hospitals that are very, you know, very challenged in terms of their operating costs and access to capital. You know, one of the things that we've done is to try to take responsibility for that. We have established a huge number of primary care physicians out in 43 counties. We attempt to take care of as many of our Geisinger patients as possible in non-Geisinger hospitals, many of which we account for half of their admissions -- very small rural hospitals. And we've found ways, actually, to extend our capital access to these hospitals in order for them to get up to snuff in very expensive technology.

So I think the other advantage in rural areas -- everybody always bemoans rural areas, but actually, we have a very stable population. And that gives us an advantage, because we can see the effects of what we do not just over 30 days or six months but over many years. We have stable families, sometimes multigenerational, and we can use that asset to help take care of a lot of these chronic disease patients without having to have them, you know, schlep into the emergency room.

So the rural issue actually cuts both ways, and there's some real advantages, we've found -- couldn't do it without electronics, couldn't do it without HIT throughout our entire geography. It would be impossible because of the physical distances.

MR. IGLEHART: Now, you describe the Geisinger system as an integrated system, which it certainly is, but the patients come from -- the channels of payment derive from several different channels. And in a recent paper that Health Affairs published that you co- authored, you talked about the sweet spot of one-third of Geisinger patients for whom you are financially and clinically responsible, and then the other 70 percent or so of Geisinger patients come through, as I understand it, a fee-for-service payment channel.

Can you describe either differences in cost or differences in efficiency between this sweet spot cohort of one-third of the patients and the other 70 percent?

DR. STEELE: You know, I'm going to be a little circuitous on this one. Seventy percent of our payer is Capital Blue Cross, Highmark, Northeast Blue Cross and Coventry, and 30 percent, as you say, is our own insurance company. So for that 30 percent where we're both giving care for patients and we're insuring them, that's where we've committed our major innovation, because, as I said, we can have our insurance leaders and our docs and nurses in a different conversation than we have with Capital Blue Cross, Highmark, Coventry and Northeast. That conversation is the old-fashioned we're trying to get the best rates we possibly can per unit of work we do. And that's high yield for us.

Now, when we create an innovation, whether it's medical home or whether it's the warranty or what have you that takes cost out, it's obvious that we do that for all the patients regardless of who the payer is. So it benefits all the patients. And because our insurance company is relatively small and is competing with big, big insurance companies, the way that insurance company sells its commercial product is to take some of that value and give it back through lowered premiums to the small commercial buyers.

MR. IGLEHART: And then one last question: Do you have a problem hiring or retaining under contract primary care doctors in your plan, Doctor?

DR. STEELE: We don't, John, because we pay them better than market. And we pay them better than market because we cross-subsidize from our specialists. That's part of our social contract. Our specialists basically understand how important it is to have the entire continuum of care and our commitments to having primary, secondary, specialty, non-hospital and hospital-based. So it's a cultural and very important social contract that allows us to get those folks. It's a tough market, obviously.

And one of the other things that is very important is the re- engineering of our primary care. We have a lot of PAs and nurse practitioners now doing things that used to be assigned only to primary care physicians. So we can recruit them but we're also re- engineering.

SEN. BAUCUS: Thank you.

John, if I might ask both Glenn and also Mr. Hackbarth, your recommendation to how we can transfer, transport what you do to nationwide? That is, through Medicare or how? You know, to be honest, all these concepts, I think, are pretty much all agreed upon as good delivery of system reform, and some sectors of the economy are doing it. Some hospitals, some docs, some specialties will do it -- certainly Geisinger is.

So the real question, to me anyway, is your advice on how we transfer it? How we, you know, transport it to the country. Maybe using Medicare or whatnot -- just, what advice do you have and what problems do you see going along the way and how would you iron out those kinks?

DR. STEELE: Well, the first thing I would do is to redesign CMS. I think CMS needs to be an engine of innovation, not a stultifying bureaucracy. I think that part of the redesign should be based on a patient focus and I would start with the patients that are probably the highest cost and probably have some of the poorest continuity of care. And then I would back out, after you decided where you wanted to go with that group of patients, I would back out how you paid for that care.

Now, going from where we are in our structure to where we would want to be in medical home or bundled payments or what have you is not going to be easy to get perfect straightaway. So I think there's going to have to be some sort of a learning network or some sort of an ability where you take the demonstration projects and you really make a much more rapid cycle time so that you're not waiting five to eight years for each demonstration project to give you some innovative approach.

MR. IGLEHART: Senator Stabenow?

SEN. DEBBIE STABENOW (D-MI): Thank you very much.

Thank you, Mr. Chairman.

And thank you to each of you.

I guess my question --

SEN. BAUCUS: If I might, just curious -- Glenn did not get a chance to answer that question. I asked the same question of Glenn. If he could just answer -- and MedPAC has a lot of thoughts on that, too, I would guess.

I'm sorry, Senator.

MR. HACKBARTH: Thank you, Senator Baucus.

Geisinger is a terrific organization. My own professional experience in health care management is in Geisinger-like organizations. But, as you say, most of American health care is not currently organized that way. And so we'll need to start with building blocks and move in measured steps towards better coordination, better integration of care.

I'd like to identify two opportunities in Medicare. One is to change how we pay physicians with particular emphasis on both increasing the level of payment for primary care and changing the method of payment for primary care -- not just paying fee-for-service but also paying a lump sum per patient as is embodied in the medical home idea. We have abundant research that shows that strong primary care is essential for a well-functioning, high-performing health care system. As you know all too well, primary care in the United States is weak and, unfortunately, getting weaker. So that's a key priority.

A second major opportunity that we see both for improving care and reducing cost, as well as starting to build some organization in the health care system, is a focus on readmissions. As you know, Senator, Medicare has a very high readmission rate. About 18 percent of Medicare patients are readmitted within 30 days of a hospital discharge at a substantial cost financially and some cost in terms of pain and suffering and risk for the patients involved as well.

What's striking about those numbers is there's a very large variation in readmission rates across hospitals. And so we see in that an opportunity for the high-readmission-rate hospitals to improve by learning lessons from their peer hospitals.

We think that there are two types of changes that Medicare ought to make in order to encourage a focus on readmissions. One would be to feed back data to hospitals and their medical staffs on show their readmission rates compare to their peers and then follow that with a penalty on excessive readmission rates. Concurrent with that, we think that Medicare ought to invest in pilots of what we refer to as bundling, whereby Medicare would make a single payment covering all of the cost of the admission and perhaps post-acute care as well. So it would cover the hospital inpatient care, physician services provided inpatient, plus potentially post-acute providers. And so if there's a single payment, there would be a strong incentive for all the participants -- the physicians, hospitals and post-acute providers -- to focus on how we can reduce the readmission rate.

A secondary advantage of that is that providers that heretofore have acted in silos, independently of one another, will need to come around the same table and say how do we solve this problem?

SEN. BAUCUS: Good.

Thank you.

MR. IGLEHART: Senator?

SEN. STABENOW: Thank you.

Dr. Steele, I wondered if you could speak a little bit more about your ability to focus on chronic diseases and be patient-focused as an integrated system? Because I understand it, you own your own hospitals, you have home care, you have nursing homes. And that is a different delivery model than we have in other areas. You have your own insurance company that's covering a third of your patients. To what extent does that -- if you could speak more to how that affects your success in doing what we all want, which is to be creating a system that's more patient-focused.

DR. STEELE: Senator, I think it's critical. And, you know, we could talk about the blocking and tackling, but the main reason that folks with congestive failure end up being admitted and readmitted and readmitted, in our experience, is they don't take their medicines at the right time or correctly. I mean, it's just that simple.

Now, solving that problem is an immense and complex series of blocking and tackling issues that we've accomplished in different ways. We put nurses in our community practice sites and the nurses take care of 125 of the sickest patients on a 24/7 basis. So it's kind of like concierge care for the sickest, not the richest. And it basically helps to redesign the practice so that primary care physicians are able to do something else if the nurses are really triaging those sickest patients.

Now, the real question is what are the lessons for scaling and generalizing to the rest of the country? And I don't have, you know, I don't have simple answers for that. But I think if at Medicare you are able to focus on that as a three- to five-year goal, you'd -- number one, I bet you'd cost it out through CBO and it would be a huge savings, and, number two, you know, if you could create some sort of an innovation engine that would allow other systems that were like ours, or virtual systems, to try to solve for us -- because we're not going to be able to come up with the perfect generalized solution.

Now, if you don't get there, then maybe there should be a Plan B. And the Plan B would be something that would be a lot more onerous, you know, than three to five years of innovation in trying to get there.

So that would be my response.

SEN. STABENOW: Thank you.

MR. IGLEHART: Senator Conrad?

SEN. KENT CONRAD (D-ND): Just following up on Dr. Steele and I pose this to the panel because I don't know -- perhaps, Mr. Iglehart, you can direct the question to -- the statistic that jumps out at me is 5 percent, roughly 5 percent of Medicare beneficiaries -- Dr. McClellan would know this -- use half of the budget. Five percent use 50 percent of the money. And they're the chronically ill. And we do a very poor job of coordinating their care. The result is we get weaker health care outcomes than we should and it costs far more than is necessary.

Have you, Dr. Steele, in your organization found that coordinating the care for those chronically ill does get better health care outcomes, does save money, and what is the empirical evidence that tells us that?

DR. STEELE: Well, you know, we're going to turn a paper in with an experience of about 35,000 -- 30,000 Medicare patients and about 3(,000) to 5,000 commercial patients with chronic disease. And hopefully it will get accepted in a nice peer review journal and we can talk about it.

But I can tell you that from our original experiment, which started about four or five years ago, where our insurance company put these nurses into the community practices to help re-engineer the practice, and focused on that group of patients you're talking about, the return on that for the patients was incredible. It was in a number of our sites over 50 percent decrease in re-hospitalizations, you know, in a year. And that's been durable.

Now, most of the financial benefit of that in our system comes back to our insurance company. But because we're an integrated system, we can do internal transfer pricing and get a lot of those, you know, those rewards, financial rewards back to the folks that actually deliver the improved care. And we would, you know, we would have to innovate as to how to do that in nonintegrated health systems. But we've got pretty hard data that when you redesign, you really do benefit the patient. And quality goes up while cost goes down. They're not inversely related.

MR. IGLEHART: Dr. McClellan, want to respond?

DR. MCCLELLAN: Yes. Senator, just to pick up on your question, there's no doubt that for many of these Medicare beneficiaries, most of whom have a chronic condition, they are experiencing complications and higher costs, worse health, because we are not doing nearly all we could to help them get better outcomes. And Dr. Steele has talked a lot about the activities that the Geisinger Clinic has undertaken. And, by the way, some of those were supported by payment reforms in Medicare to support those kinds of coordination of care activities.

But the problem for most of the physicians in your states, and I'm sure you hear about this from all of them all the time, is that they know stuff that they could take that could help patients comply with their medicines better, that could help them manage their diseases better. They just don't get any support for that in most of our current payment systems. They get paid on a fee-for-service basis, and what Medicare typically does when costs go up is you squeeze down the payment rate so it gets harder and harder to spend time with patients. Things like having a nurse practitioner help care for the most complex patients, things like actually taking the time and effort to put information into an electronic system so that it can be shared, things like spending extra time educating a patient about why certain drugs or certain dietary or activity changes are needed -- none of that gets reimbursed.

So it's very hard for providers today, outside of integrated systems like Geisinger's where they're actually now supported in doing this, to provide the kinds of care that would really help improve the outcomes.

The problem on the other side, of course, is that if you talk to some of the budget experts at CBO and the Medicare actuaries and so forth about just simply taking steps like starting to pay for all these things that we don't pay for now, there's a real concern that that could add to health care costs if it doesn't really result in changes in care that get those better outcomes and that reduce health care spending.

So that's why I think some of the movement in this direction that much of your staffs are supporting, I really commend the bipartisan effort here, is to move away from just relying on fee-for-service payments but instead of simply paying for more other kinds of stuff, move towards having some accountability around better results, reducing these complications, as Dr. Hackbarth mentioned, reducing the readmissions, getting costs down, improving patient outcomes in measurable ways. That's the general direction that we're trying to move in.

And the big challenge, of course, is how can we do it in a way that's not too disruptive for care today, most of which is not integrated at all, yet still is going to give us some assurance that we're getting real meaningful change quickly. I think there are a number of proposals that your staffs are working on that people on this panel have suggested that can be put together to create a vision to get there.

SEN. BAUCUS: John, I must interrupt here. We have a little business to conduct which will help health care reform and that's to confirm Kathleen Sebelius as secretary of HHS.

MR. IGLEHART: Okay.

SEN. BAUCUS: And we have a quorum present and the business before the committee now just temporarily is to report out Kathleen Sebelius as the secretary of HHS.

I'll entertain a motion that --

SEN. : I move.

SEN. : Second.

SEN. BAUCUS: Is there any debate?

SEN. JON KYL (R-AZ): Mr. Chairman --

SEN. BAUCUS: There's no debate.

Senator Kyl?

SEN. KYL: Mr. Chairman, I appreciate the governor's efforts to clarify her relationship with Dr. George Tiller as well as my concern about the use of comparative effectiveness research to deny or delay health care to Americans under proposed health care reform.

Comparative effectiveness research can be used to provide patients and doctors with information so that they can make informed health care decisions. But, without appropriate safeguards, the government can misuse comparative effectiveness research to deny coverage.

Unfortunately, Governor Sebelius's answers to my questions made it clear that the administration is unwilling to support pro-patient safeguards. She left me with no assurance that HHS, federal health care programs or any new entities such as the Federal Coordinating Council, will not use comparative effectiveness research as a tool to deny care and this should be a matter of concern to all of us.

Her justification relied on two points which were inaccurate and which contradicted each other, raising more doubt.

First, she said, and I'm quoting, "The law prohibits Medicare from using comparative effectiveness research to withhold coverage." She's referencing the 2003 prescription drug bill, which obviously found the need to -- for Congress to step forward and prevent this kind of research from denying coverage, but obviously it only applies to prescription drugs, not to all other aspects of treatment.

So one would assume that if she thought this was a good idea that she would support applying the same kind of patient protection that we have provided in Medicare Part D to the rest of the federal programs, but she does not. In fact, her contradictory statement, and I quote, was "When authorizing comparative effectiveness research in both the Medicare Modernization Act and the American Recovery and Reinvestment Act, Congress did not impose any limits on it," end of quote. And that's true and that's precisely the problem. NIH is already taking steps necessary to make cost-based research a priority.

The acting director said this in a very recent project description and I quote: "Cost effectiveness research will provide accurate and objective information to guide future policies that support the allocation of health resources for the treatment of acute and chronic conditions," end quote. Allocation of health resources is, of course, a euphemism for denying care based on cost, and yet Governor Sebelius would not agree to pull this project.

I believe in the right of every American to choose the doctor, the hospital, the health care plan of his or her choice, and that no Washington bureaucrat should interfere with that right or substitute the government's judgment for that of a physician. And I will oppose Governor Sebelius's nomination because of her insufficient commitment to these principles.

SEN. BAUCUS: If there's no further debate, the committee will vote on the motion to report the nomination. A recorded vote has been requested. The clerk will call the roll. (Vote is taken.)

The clerk will announce the vote.

MR. : Mr. Chairman, the tally of the members present is 11 ayes, five nays. The final tally including proxies is 15 ayes and eight nays.

SEN. BAUCUS: The ayes have it and the nomination is ordered reported.

Return back to our business.

John.

MR. IGLEHART: Mr. Hackbarth, I'd like to get back to your days as an executive at the Harvard Community Health Plan and the Harvard Vanguard Plan, because you administered a plan that had capitation payments and fee-for-service patient payments, as does Geisinger.

And the question I have is really the relative efficiency that you recognized during that period of time. Fee-for-service seems to be if not universally recognized as kind of the problem or the major problem or one of them, certainly, of the current system and I'd like to get your thoughts on the relative value and efficiency of those two kinds of payment channels.

MR. HACKBARTH: Yeah. Well, at Harvard Vanguard, which is a 500- physician, multispecialty group practice in Boston, we have about two- thirds prepaid global capitation covering all services from the most basic to the most complex. So we'd get a lump sum per patient payment per month and about one-third was fee-for-service. And, to be blunt, fee-for-service was a pain in the neck to deal with and we were able to provide the sort of care that we thought patients needed by using the global capitation payments.

The key is that we, and I say we meaning the clinicians of the group, had the flexibility to allocate resources where they see the most benefit for the patient, whereas under fee-for-service you only get paid if you check certain boxes and you do certain activities. And some of the most critical activities in health care are not paid for by fee-for-service. So, from our perspective, the global capitation was a much more effective system and we used those payments to improve care for our fee-for-service patients.

It's not just an issue of the payment level in fee-for-service. It's what is not paid for is the crux of the problem.

MR. IGLEHART: Taking the experience of the last nine years as chairing MedPAC and recognizing that earlier experience, and also recognizing Senator Baucus's earlier question about how you take experiences and scale them up to some national level, what thoughts or recommendations might you have based on MedPAC's work about moving to a more efficient payment system?

MR. HACKBARTH: Yeah. Well, you know, I think we need to look at both ends of the provider continuum. We do have some organizations that have the potential to be Geisingers of the future. And I think if Medicare combined with private payers offer payment methods that reward the effective integration of care, we'll get more of those organizations. And so I'm sure that Mark McClellan will talk later on about an idea that he and colleagues have developed called accountable care organizations. And basically, it's a way of, within the context of fee-for-service Medicare, rewarding organized, integrated delivery of care. We think that concept has potential, although it's quite tricky to figure out the precise payment method within Medicare to make it work.

So we need to work that into the continuum, foster more organized, integrated delivery organizations. But, having said that, as I said in response to Senator Baucus, there are going to be large parts of the American health care system that are not ready for that. And so we need to start smaller with them, build up our primary care base through higher payments for primary care, different methods of payment, and then we think around hospital admissions there's another opportunity to begin bringing providers together, physicians, hospitals and post-acute providers, to better organize and integrate care -- so work both ends of the provider organization continuum.

SEN. WYDEN: John?

MR. IGLEHART: Yes, go ahead --

SEN. RON WYDEN (D-OR): Question on this point. We've been at it maybe 20, 25 minutes and this panel has already done a very good job, it seems to me, of showing we're spending a lot of money on health care. It's $2.5 trillion this year. But we're not spending it in the right places, and clearly that started with Glenn's comments and has been echoed.

So I wanted to ask, and maybe direct this to you, Dr. McClellan, it's clear that of that $2.5 trillion, well over $700 billion of it is spent in areas that are of modest or no value. That's what Peter Orszag said at CBO, Morris at -- inspector general said $60 billion is out the door on fraud. The Center of (sic) Medicare and Medicaid Services says $10 billion goes for inaccurate payments.

Why don't you start by saying how we could better spend that $700 billion in a way that we might actually show the American people, would wring some savings out of that $2.5 trillion sometime in the next few years, because that's what I think they're waiting to hear. They've got bailout fatigue. They're not going to support spending trillions of dollars in new money.

But if you and your colleagues can show us how we can wring out some savings -- and I, for example, am very attracted to Glenn Steele's idea. I'm pretty much ready to say we ought to go to a warranty approach. A warranty approach that involves the doctors and good quality -- that's the way to generate some savings.

But Mark, how do we start with that $700 billion-plus and show the American people we're squeezing some savings there before we ask them for more money?

DR. MCCLELLAN: Senator, this is a core question. I'm sure the other panelists have some views on it that will reinforce some of the things that I'm saying. But, as you pointed out, our health care system is doing a pretty good job of showing us the money and we know where the money's going, but we're not getting what we should in terms of the results. We're not showing the results.

A lot of the comments that you've heard so far have all been focusing in the direction of emphasizing, getting better results for patients.

And, as you heard just a minute ago from Dr. Hackbarth, giving providers more flexibility in how they get there rather than just micromanaging them by paying for certain services, not paying at all for others, is very important for doing that. But that needs to go along with some accountability for what we really want our health care system to produce. That's what the American public wants to see. They want to be healthier, they want to see these gaps in preventable complications closed.

But also, they -- if you look at surveys, and I know you have since you've spent so much time and effort on finding a way forward on health care reform -- they're also very concerned about disrupting the kind of care that they get now, the very important relationship they have with their doctors and their other health care professionals. It's really important to them.

So as we make these changes we need to make sure and do it in a way that's not too radical and too disruptive, especially for the vast majority of Americans whose doctors can't even get, if they wanted to, timely information on whether the prescriptions are being refilled or what other specialists are being seen or whether their patient's been admitted with a complication.

In the short term, there are a number of proposals like medical home payments, like health IT payments, like moving towards bundled payments for admissions, that could move us in the direction of showing that we're getting better results and we're doing a better job of supporting doctors and patients in doing good care. And over time, we need to put more emphasis on the fact that we are actually getting better outcomes and lower costs.

So that's how I think this can fit together. And I think it's very important for this committee, on a bipartisan basis, to, as you did, point out the problems that we have in our health care system today but also a path that's not too radical and disruptive but that can over time get us to some fundamentally better outcomes at a lower cost. And I don't see another way to get there besides measuring the outcomes that we really care about and starting to build that into our payment systems and benefit designs and all aspects of our health care system, much as Geisinger has already started to do.

MR. IGLEHART: Senator Cornyn?

SEN. JOHN CORNYN (R-TX): Thank you.

It's been widely observed that we don't really have a health care system, we have a sick care system. And I want to ask, perhaps playing off of Senator Wyden's questions, how we can save some money but also by encouraging or providing incentives for individuals to take some personal responsibility to do some of the things that will keep them healthier and well longer, thus avoiding costly and painful, perhaps, health care conditions.

I'm aware, and I've no doubt the panel is, too, of some instances where various companies are trying to control their own health care costs. Safeway, which Mr. Steve Burd, who's, I know, consulted with a number of us on a bipartisan basis, has really kind of a fascinating program at his company which perhaps is duplicated elsewhere, which provides a financial incentive to the employees to do things like quit smoking, lose weight, get exercise, control their blood pressure, control their cholesterol, get a colonoscopy on a periodic basis -- the kinds of things that will keep them healthy longer or perhaps diagnose conditions early on when they're less costly and less dangerous to treat.

What kind of delivery system are we going to design for Medicare or other public tax-dollar-supported programs to provide some incentive for individuals to take some responsibility for their own health care and stay well and healthy longer?

MR. IGLEHART: Mr. Lee?

MR. LEE: Senator, Peter Lee with the Pacific Business Group on Health, and I just want to affirm the question in that many large employers are investing a lot of money, time and effort in engaging their employees in staying well. And we talked about the, Mark, the spectrum on provider side. We need the spectrum on the consumer side of engaging folks that are well to stay well.

And I think that the lessons from the private sector should be brought over to Medicare, which is to encourage people that are well to engage in healthy habits but also for people's chronic disease to have incentives to be engaged in disease-management programs. They really -- the issues on the treatment side need to be married with the consumer side.

I think also that we have a challenge with Medicare. Medicare is often seen as a one-size-fits-all as opposed to being tailored. And I think we need to really look at how Medicare can implement consumer- facing programs, such as do we have networks within Medicare for centers of excellence?

Do you encourage people with information and incentive to say, this center is doing a better job? This is a challenge, but we need to look at lessons from the private sector that can be brought in consumer facing on the public sector as well.

MR. IGLEHART: Senator Bingaman?

SEN. JEFF BINGAMAN (D-NM): Thank you. I was just struck by Dr. Steele's point that, when he was asked what could be done to take the practices that you've got at Geisinger and expand them, I thought his answer was redesign CMS to be an engine of innovation. I'd just be interested in Dr. McClellan's view as to what the obstacles are to us getting that done.

It seems to me, you know, Congress is way into the weeds on health care reform and writing these laws and trying to understand the intricacies of this business. Why can't CMS be given a broader mandate, or maybe they have a broader mandate, to implement many of these practices that I think everybody around here says make a lot of sense and save us a lot of money and improve care?

DR. MCCLELLAN: Let me start by saying a word of praise for the staff at CMS that have an enormously impossibly complex job, very limited resources to do anything and overseeing the largest health care programs in the world for the most difficult populations and the most vulnerable populations in terms of coverage. So with their limited budget, they frankly need a lot more resources would be the number one thing and I think would help get more done.

But, as you pointed out, the way that Medicare is managed now doesn't leave a whole lot of room for discretion in implementing the kinds of reforms that we've been talking about today: moving away from payment on a fee-for-service basis; promoting wellness; and new stats to help patients with chronic disease manage their disease at a lower cost. Congress, in due respect to this committee, you all set the payment rates for each and every Medicare service in each and every county around the country.

Now, you've also given CMS a lot of demonstration authority, and Dr. Steele mentioned this. In fact, while I was at CMS we implemented a demonstration program with Geisinger to pay them more when they demonstrated that they were getting better outcomes at a lower overall cost to their patients. And I think that program has helped motivate and implement the kinds of steps that Dr. Steele talked about over the last couple of years.

It would be very helpful to enable CMS to engage and support more pilot programs like that. You heard a minute ago about the cycle time for trying out new approaches in payment or in benefit design being much slower than it should be if we want to see timely and effective impacts on health care costs and the health of Americans. That is going to take more resources and it's going to take at least a clear authority for CMS to pilot and test out these new approaches.

In the Medicare Modernization Act there was a pilot program for Medicare health support, a kind of disease-management program. It ended up not, in most cases, delivering the savings that had been hoped, but at least it could be tried out on a large scale, and at least successful programs could be expanded quickly. That might be a model to look at more widely as you're considering these reforms.

SEN. BAUCUS: If I might ask, though, Dr. Steele, what did you have in mind when you said reform CMS?

Three minutes.

DR. STEELE: You know, I have -- (laughter) -- I have the ability to speak without any knowledge at all.

SEN. BAUCUS: Yeah. Tried it. You're not alone. (Laughter.)

DR. STEELE: You know, I just, again, I don't think we're going to get it right for all of these changes, straightaway. And yet I think we have huge leverage through Medicare and also through Medicaid. We haven't talked about Medicaid either. That's another incredible lever. And I think if we're interested in getting closer to an integrated system, whether it's a real one or a virtual one, if Congress could set the big rules, here's where we want to go in three years or four years, you folks figure out how to get there, and by the way, if you don't get there in improving this quality of care and decreasing this cost, then we'll have a Plan B.

I have a feeling that ramping up from our small experiments, to maybe, I don't know, 3, 4, 5 million out of the 40 million, would be the next step in looking at scalability, with much more feedback, much more ability to change on the fly. A lot of what we did was accomplished because we were able to change, on the fly, there were a lot of unanticipated consequences for things that we did that we could respond to.

So, you know, again, that's 35,000 foot; it's without working at CMS and, you know, so it's easy to make these pronouncements.

SEN. BAUCUS: Thank you.

MR. IGLEHART: Senator Snowe?

SEN. OLYMPIA J. SNOWE (R-ME): Thank you. What I held from the listening sessions in Maine over the recess and many of the issues that you raised here today with respect to primary care being instrumental and improving quality of care and lowering costs is exactly what I heard at home. And one of the issues that was raised, however, was the crisis that exists with physician shortages, particularly in primary care. And if you look at the number of studies that have been released on this question, it's, I think it's all the more evident that we have a dearth of physicians with respect to primary care.

Americans lack access -- almost a third of Americans of working age lack access to primary care providers. Seventy percent -- I was told that health care needs can be met in primary care and yet we have a lack of primary care providers across the spectrum. And in fact, we'll have a serious crisis by the year 2025 and even more so if changes are made to the system.

So, I'd like to ask you, Dr. Tooker and Mr. Hackbarth and anybody else who cares to comment on this question, how do we reverse that and what's the timetable for reversing it? Because obviously it's going to take some time to, you know, turn the ship around with respect to primary care physicians and nurse practitioners, physician assistants across the spectrum, which is a critical problem, even more so when only 2 percent indicated an interest in even going into primary care field, which I think is all the more troubling, given the fact that I think the emphasis on prevention, early diagnosis is going to be key in transcending from a system that responds to a crisis and rather trying to design a system that is to prevent the illness in the first place.

So, Dr. Tooker, would you care to comment?

DR. TOOKER: I'd be delighted. Thank you, Senator Snowe.

And thank you, Chairman Baucus and ranking member, for this opportunity.

Senator Snowe has said, I think it's on the one hand, the value of primary care is highly recognized as a critical part of a high- performing health system. But that value is not translated into valuing primary care providers, including physicians in this country. The disparity in payment across specialties -- primary care compared to other specialties -- is wide. And the first recommendation would be to restore those primary care physicians who are providing care right now with a -- quickly, immediate -- improvements in reimbursement for primary care physicians now.

Related to that, though, and I think a critical part of this notion of the funding for primary care, including new models of care such as the patient-centered medical home, is funding the infrastructure to provide the care that these patients need. As Glenn Steele has said that Geisinger helped to reform primary care at Geisinger both by improving the compensation for primary care physicians so they do not have difficulty recruiting primary care physicians to those practices but also in providing the infrastructure for those physicians and the team-based care that they provide to be able to provide the care. For example, care coordination: As thinking about our Medicare population in particular, about a quarter of Medicare patients have five or more chronic conditions. They will see lots of physicians over the course of a year, 40 or more outpatient visits in a year, hospitalizations, et cetera.

There is an enormous amount of information that has to be managed for each individual patient, and that does require infrastructure. It requires the people with the skills, such as advance-practice nursing, which in team-based care is invaluable, but also requires -- and Glenn mentioned you can't do this without the electronics, and the need for practices to be able acquire health information technology, and obviously that's been a big part of the stimulus package as well.

I think we also at the same time need to recognize that the demand for these services is only going to increase with an aging population. And to your point about prevention -- and I think Senator Cornyn made the same point -- is at the present time primary care, the population health preventive services are not reimbursed so that in a practice there is not time for the (physician and team ?) to provide those services now.

In a medical home model with team-based care, with adequate compensation for the care coordination, those services can be provided. I am not, though, saying that if you were to score this one year from now that you'd be able to document the savings, but this would have to be a long-term proposition.

The other last point I want to make in response to your question, Senator, is that while I am a huge admirer -- I'm from Pennsylvania now, formerly from Maine -- I am a huge admirer of Geisinger, but we have to recognize that the vast amount of this care in this country is provided in practices of five or less now, 80 percent or so. And we're talking about in the range, in the 2006 National Ambulatory Care Study, of 900 million ambulatory visits in the course of a year.

So the vast amount of this is taking place in small settings and there's this big divide between the electronics that Geisinger has and what a two- or three-person practice has. And while we might want it some other way, that's the reality in which we're dealing with right now. So I think there has to be a frank recognition of the fragmentation of health care in this country and Maine is a good example of that right now.

On the other hand, Maine is also leading in the sense of innovation of developing primary care medical school with Tufts to try to solve some of these problems that you were talking about. Thank you.

MR. IGLEHART: Mr. Hackbarth?

MR. HACKBARTH: Two quick additional points, Senator Snowe. In addition to the medical home, MedPAC has recommended that Congress provide for a bonus payment basically for clinicians that are focused on primary care practice.

So this is an additional payment on top of the standard fee-for- service payment that would go to clinicians that are in certain specialties and through their pattern of practice demonstrate a commitment to primary care.

In addition to that, we've made several recommendations about the process by which Medicare sets the fees for different types of services, the relative values, and we think that that process is skewed in a way that's detrimental to primary care.

The last point that I would make is that, you know, even if we do all of these things, medical home, primary care bonus, change the RVU- setting process, the unfortunate reality is that we are going to face a shortage of primary-care clinicians in the future. We're going to have too many older people with complex illnesses and not enough people coming through the pipeline.

And so I think another part of the -- if not solution -- another part of addressing the problem is increased use of advance-practice nurses. In Harvard Vanguard Medical Associates, my old group, we made extensive use of advance-practice nurses to complement the efforts of physicians, and I think the health care system needs to do that more broadly.

MS. : Mr. Iglehart?

MR. IGLEHART: Dr. Korn, you have a quick comment?

DR. KORN: Yes. I'm with Blue Cross and Blue Shield Association, and I think I can weave perhaps some of the suggestions made by senators into a recommendation. What can CMS do? You know, the Blues are somewhat unique; we're national but we're also very, very local. And so as CMS thinks through any number of innovations and/or pilots, you might consider partnering locally with successes that have been achieved.

And we're beginning to emulate the Geisinger model in a fee-for- service environment. I'm sure you know in Iowa that we have a model where the nurse case managers work for the individual physicians' offices rather than the plan. And the care management is directed to those patients whom the physicians suggest are most ill.

Montana, a number of years ago, innovated with a remarkable program to control the use of unnecessary radiological procedures. Massachusetts has now put together a program where in a fee-for- service sector, using a very unique contracting strategy, they're beginning to emulate the incentives and loyalties that a Geisinger system has.

The reason I'm somewhat passionate about this is because age 65 is an artificial designator. The payer changes, but the -- (inaudible) -- does not. And so if there's some way for those of who care about these things and finance this care can learn from one another and benefit from one another's experience and even use one another's capabilities in reasonable relationships, I think there's a real opportunity and the Blues are prepared to collaborate to share with all of you in any way we can.

SEN. BAUCUS: I see that Senators Cantwell and Carper have been trying to seek recognition for a while. I don't want to get in your way there, John, but I just -- I know they've been --

SEN. MARIA CANTWELL (D-WA): Well, I just -- I wanted to jump in there on the primary care shortage issue and just ask or emphasize more about the education system about incentives for getting those to go into primary care with more loan forgiveness, more focus on medical residency support and more on the structure.

I mean, obviously we have to quit "disincenting" from a structural perspective primary care service, but we also, as you said, have to deal with the shortage and I think we need to be much more aggressive. I'm hearing from my hospitals in Spokane -- and I know Mr. Umbdenstock, you just care from there, running the association -- patients are now coming back to the emergency room for their primary care.

The emergency room -- it's not just the cost of going to the emergency room for that -- people are using the emergency room as their primary care physician and it's costing us. And so we have to deal with this demand wave that's coming in for the population and match it up with the education program. So I wondered if you supported those kinds of incentives.

MR. UMBDENSTOCK: MedPAC has just recently begun looking at medical education and Medicare's role in financing medical education to see if there are ways that we can use the leverage of that financing to influence the output. We've not yet made specific recommendations; we may well this coming fall. But among the issues that we've identified are, of course, the mix of people being trained is not what we would want from the perspective of a high-performance health system and conceivably -- and this is not a MedPAC recommendation -- but conceivably you could imagine Medicare saying we are going to skew our payments to award more primary care training than others.

You could imagine Medicare or the federal government more broadly establishing special programs of expanded loan forgiveness for clinicians who commit to primary care activities. There are also some more technical issues in how Medicare pays for residents that actually get in the way of proper ambulatory training. The training is skewed towards inpatient hospital and away from ambulatory settings. So there are a number of levers that we think Medicare might be able to influence that could change the output in constructive ways.

MR. IGLEHART: Senator Hatch?

SEN. ORRIN G. HATCH (R-UT): Well, thank you.

Now, in my opinion, just along the same lines, we have access to the finest facilities and technology in health care but their effectiveness will always be limited if we don't have well-trained professionals. The work force shortage in our health care system is reaching crisis proportions, in my opinion, and is a multifaceted and complex problem that ranges across the entire cross-section of the medical profession, from nurses to primary care physicians to emergency room doctors.

Now, to truly understand this problem -- and I've been very impressed with some of things you've said, Mr. Hackbarth, on MedPAC-- but to truly understand this problem across this broad spectrum of issues, I would like to suggest maybe the formation of a medical or health care work force shortage commission to not only study the several efforts already under way but to provide Congress with a blueprint of recommendations to better coordinate these efforts and suggest new strategies to drastically reduce, if not completely eliminate, health care work force shortages.

So I'm very interested in hearing your various perspectives on that suggestion and see if that's a worthwhile thing to do.

Dr. Tooker, start with you.

DR. TOOKER: Yes, thank you very much. I think that builds on the comments from you from Senator Snowe and also the testimony that we had originally provided. To me there is a -- unless the market is going to fix itself first in the sense that primary care is competitive in the market, it won't be enough just to try to fix the medical school and graduate medical education. And by the market I mean that we need to value primary care as highly as we value every other critical service that's provided to our patients now.

I think it is important -- and that's why I mentioned the primary care medical school in Maine -- to have innovation where medical students are specifically encouraged to practice a certain kind of medicine in a certain geographic area. Maine is unique, or northern New England is unique, and I think that there is some benefit and we can get into things like loan forgiveness because the debt of medical students now is in the range of $160,000.

They're making rational decisions to pursue careers that are going to reimburse them higher.

But I think sometimes we're not talking enough about how and where they are trained, and we, of course, have very impressive academic medical centers in this country and in GME we have hundreds of other community programs that are developing our trainees now.

But I would say -- and I'm certainly a part of it, coming from a major academic medical center in Philadelphia -- that primary care is not valued in academic medical centers the same way that other tertiary and quaternary services are. Academic medical centers are ranked by the number of NIH grants that they get, how specialized their services are, not for primary care.

So I would tend to agree with Senator Hatch that we need independently to look at it from the point of view what is the best work force to provide care for the patients in this country as opposed to other models which are disincenting our young people to go into primary care.

Now, to their credit, the AAMC, the Association of American Medical Colleges, has been out front in the sense of a patient- centered medical home model in which they have committed as a matter of policy to providing the appropriate training for the patient- centered medical home. But a lot of that training is difficult to provide in typical academic medical centers, and as Glenn Hackbarth has said, we need to expand that to making payment available for community-based training for these types of physicians.

SEN. HATCH: Well, I appreciate those comments.

Can I ask a follow-on question, Mr. Hackbarth? Dr. Brent James of Intermountain Health Care in Salt Lake, one of the top-quality experts in the country, often says that the United States is number one when in providing, quote, "rescue care," unquote. Rescue care is saving accident victims, premature babies, heart attack victims, transplant patients and dialysis patients, just to name a few.

The good news perhaps is that no other country comes close to the United States, you know, in providing rescue care. Unfortunately, rescue care has little or no impact on the general population. A more effective approach is to place a stronger emphasis on primary care and preventive medicine. Now, how do we as a country go from providing the best rescue care in the world to providing our citizens with better primary care and preventive medicine? Anybody who cares to answer.

MR. IGLEHART: Dr. Opelka from the surgeon community, thoughts on that and also your work force perspective, if you would please.

DR. OPELKA: Thank you much, Chairman Baucus and Senator Grassley and the rest of the committee members. We appreciate the opportunity to be here on behalf of the American College of Surgeons.

If I could, Senator Hatch, first to the work force issues: They are complex and we are starting now to see some actual shortages in surgery areas. We've got about a 16 percent reduction in general surgeons over the last 10 years.

We're now reaching the point where we are losing general surgeons in aggregate and in other areas of surgery like urology and ophthalmology and orthopedics, the number per 100,000 is dropping year after year. Now, perhaps some of that is right-sizing in surgery, but perhaps some of it isn't and certainly in general surgery and particularly in the rural areas of general surgery.

If we think about the medical home and we're highly supportive of the concept of the medical home, the general surgeon actually is the first responder for the entire medical home community. And with the shrinkage of that general surgery support, it supports all the rest of the acute care in a hospital. When you start to lose your general surgeons in a hospital you start to lose your hospitals. It's very difficult for rural communities to actually support other activities in the hospital if they don't have the general surgeon.

And we will actually see an erosion of some of the trauma support that we currently have and established at a very high level. In other specialty areas, you can leave Boston and Worcester, Mass., and start heading to the west and you won't find another neurosurgeon until you get to New York. So when you have major trauma injuries, head injuries, transporting those patients, if you don't have a general surgeon to stabilize them in those communities and they can't get them to a neurosurgeon in a timely fashion, we're going to have other major issues.

Now, the real problem with the work force and the reason I think your idea is such a great idea is that it takes a long time to develop these surgeons in their specialty areas. It's six or seven years before they complete their training after medical school, and then to truly flourish and develop that expertise is another three to five years as they mature as a surgeon.

So the queue is very long, the pipeline is a long push. When we're behind in general surgery it's going to take us years to catch up. So we need programs to address these work force shortages and to incentivize people to go into those areas.

Lastly, then, to address your issue, I think switching our focus is probably not to switch our focus on the excellence that we have but to truly hit into these chronic-care diseases where even the surgical specialties are on board that we need better primary care, we need better coordination of care with our primary care colleagues to take care of not an isolated silo of care but to take care of a continuum of care. How do we deliver the best care not for this moment for this patient but over this life for this patient for that disease condition?

SEN. HATCH: Thank you, Mr. Chairman. I presume we're able to submit questions to the panel because this is an excellent panel.

SEN. BAUCUS: Absolutely.

SEN. HATCH: I just want to complement --

SEN. BAUCUS: In fact, I might just try to put a little bug in senators' ears and even the panelists, we may want to -- this is so important -- come back this afternoon too and just keep going here, because there aren't many opportunities like this and this might be the appropriate thing to do.

SEN. HATCH: Mr. Chairman, I have a lot of questions, but I --

SEN. BAUCUS: I think we all do.

SEN. HATCH: -- have to -- would like all of us to --

JOHN IGLEHART: Senator Nelson?

SEN. BILL NELSON (D-FL): Thank you. I want to throw out a couple ideas and get you all to respond.

Number one, the advantage of Medicare Advantage, of Medicare HMO having a 14 percent differential, should we put that on a competitive basis, because it was originally set up to save cost and of course it didn't save cost.

And the other one, dealing with the work force, Medicare supports residency slots. Well, that was all frozen in 1998 with the result that your growth areas are way underfunded now, the growth states for residency slots. So maybe we could start with Mr. Williams, that you could address the Medicare HMO.

MR. WILLIAMS: Thank you, Senator. It's a pleasure to be here and have an opportunity to share our point of view. I think it's fair to say that there are opportunities for meaningful cost savings from the Medicare Advantage program. I would, however, ask us to recognize that the base Medicare Advantage benefit that is exactly comparable to Medicare is well delivered with innovative programs that really do improve quality and improve the quality of care that patients do, in fact, receive.

And I think Aetna as well as the industry are open to a variety of approaches to understanding that with a couple of suggestions. One is we need to recognize and avoid sudden shocks to the 10 million Medicare beneficiaries who entered this particular program, and as we figure out how to get from where we are to where we go, we need an appropriate slope so that the health care delivery system can collaborate in right-sizing and readjusting its whole mechanism to be certain that we maintain the right value for the beneficiary and avoid those sudden shocks, with the understanding that there is the opportunity to make some meaningful changes there.

I think also we need to keep a focus on providing incentives to the providers for improving quality both in Medicare Advantage and base Medicare and, finally, that whatever we do, I would encourage us to keep it simple, but, most importantly, keep it predictable.

SEN. NELSON: Would you be in favor of competitive bidding?

MR. WILLIAMS: Well, I think like most ideas, I think we're open to all ideas. We don't really understand exactly what specifically competitive bidding means --

SEN. NELSON: So that the plans would be based on their cost instead of a government-set rate.

MR. WILLIAMS: Well, I think that we're open to any change in the system that results in a predictable slope, minimal impact of beneficiaries and a way to create value for Medicare beneficiaries and for the government.

SEN. NELSON: And the graduate medical education?

MR. UMBDENSTOCK: I want to thank you, Mr. Chairman and the members of the committee, for the chance to be here today. I'm Rich Umbdenstock from the American Hospital Association, and we would be very supportive of increasing the number of residency slots, Senator Nelson.

We've heard the estimates and we know the shortages on the front lines. So, looking forward, you know, something of at least a substantial number of new residency slots in the 15,000 range or something, because some of the estimates and requests have gone as high as 25(,000) and 30(,000). But a huge new opportunity is necessary. As my colleagues have said, being sure that we focus those new slots or the residency program in general toward what we need in the primary care area is very important.

But also, to Senator Hatch's concerns, looking beyond residencies to the work force and the shortages we face overall -- equally important. We struggle with the nursing shortage and the continuing projections there in the hundreds of thousands of nurses that we're going to need that we just aren't able to accommodate today. So we'd be very supportive on both counts.

MR. IGLEHART: Mr. Umbdenstock, a question: If the number of GME positions that Medicare funds was increased, what guarantee would the federal government have that those increased positions would go into primary care specialties?

MR. UMBDENSTOCK: Well, John, I think it's all in how you design both the program and the rewards so that both the incentives for medical students to look toward primary care and the way in which, again, as Dr. Tooker said, we make that an attractive career path, not just in the residency realm but also in the market realm, coming out the other end -- that, in fact, there is a viable not just a profession but a viable business model. So it's really got to be thought of in connection between both the educational sphere and the real world that those physicians will enter upon completion of those residencies.

MR. IGLEHART: Okay.

Senator?

SEN. ROBERT MENENDEZ (D-NJ): Well, thank you very much -- very informative and I appreciate your willingness to come and your service and, Chairman, for your putting an excellent panel together.

I have two questions that I'd like to pursue. One is, I want to echo my colleagues who have talked about the primary care issue. We are 48th in New Jersey relative to the number of primary care physicians to families and so that's an issue. And for those of us in the minority communities, we're concerned about the disparity that further is enhanced by that reality.

So one is, Mr. Hackbarth, you mentioned the 10 percent that MedPAC has talked about as a bonus. Is that -- while that's certainly worthy, is that sufficient to draw what we need in terms of the primary care community that might be looking at keeping a universe or -- but obviously, it seems to me that may not be enough, and what else you would be doing.

And, secondly, a different question and I would like to hear your answers, to Ms. Ness -- this whole issue of the medical home concept is one that has a lot of promise to it. I'd be interested in your thoughts on how that model works on women's health care in this context.

As we all know, many women consider their OB-GYN as their primary health care physician, and when you look at the array of services, from pregnancy to specific cancer care, it is a pretty wide range of services.

Does (sic) the current medical home demonstration projects adequately address these women's unique health needs? If they do, fine. Tell me how they do that. If they don't fully, is it something that we should be considering, looking at a women's health medical home. Those are the two things I'd like to hear some responses to.

MR. HACKBARTH: Okay. Senator, we don't think that a 10 percent bonus by itself is sufficient. We've recommended that as part of a broader package. So, in addition to the bonus, we've talked about ways that the process by which relative values are set, the fees for individual services are set, can be changed in ways that we believe will increase payment for primary care. We also, as I said earlier, believe that the medical home idea is an important part of that package.

I would mention that there have been some steps already taken in the Medicare payment system that have increased payment for evaluation and management services, many of which are provided by primary care clinicians. I won't get too far down into the weeds, but, in combination, steps taken in the last couple of years have increased payment for those services by 10 or 11 percent. So it would be that 10 or 11 percent -- a 10 percent bonus on top of that, some changes in the price-setting mechanism, medical home -- that's the sort of package that we think may be sufficient in scale to have a meaningful effect. It's not just one piece.

MR. IGLEHART: Ms. Ness?

MS. NESS: Okay. Thank you. And I really appreciate the opportunity to be here, Senators. I am really encouraged by the conversation that I've been listening to because, as an organization that has been representing the interests of women and families for more than 35 years, I can say that the urgency is very great. People want us to transform this delivery system. They get that it's broken. They get that it isn't working as well as it should. They want better quality care. They want it to be more affordable. And they also get that we need to give better value for our health care dollars. They know we need to make changes to make this all sustainable over time so we can ultimately get to coverage for everyone.

And one of the most exciting things, I think, about this conversation today has been the amount of focus on what's needed for the patients. And Dr. Steele said something very profound when he started us off. He said at Geisinger, they started first by looking at what the patients' needs were and then they designed delivery and the way they were going to pay for it around those patient needs. And if there's one message I'd like to deliver, it's that I think we need to think about delivery system reform, payment reform from the perspective of, is it going to get us to making a more patient- centered system? Will it meet the needs of patients? And will it meet the needs of the highest-risk, most vulnerable patients, the ones who are falling through the cracks the most but the ones who are also costing us the most money?

We know that the folks with multiple chronic conditions are costing us at least 75 percent of our health care dollars and that's only going to get worse. The population is aging. The number of chronic conditions people have is escalating. And, from a women's perspective especially, women who are reaching those middle years, the baby boomer generation of women who are now just beginning to deal with their own chronic conditions also facing the care-giving responsibilities of dealing with aging relatives who are living longer with more complex conditions than ever. Their struggle with the shortcomings in this fragmented, uncoordinated delivery system are just going to be off the charts.

So the conversation today about shifting to primary care, shifting our payment system so it incentivizes us to move toward better integrated, more coordinated, shared accountability -- that all makes sense.

I'd like to just put a spin on that. If we look at that from the patient perspective, some of the same things, what it takes us to.

So, for example, we talked about needing to really move from acute care focus to focus on managing chronic conditions and more focus on primary care. Well, we have to value primary care more and differently than we do today, but we also probably need to think differently about how we go about that valuation process. Right now, we look at resource costs and we assign values. Well, we don't look at the values to patients. And what would happen if you included a patient voice in how we establish the payment decisions around what's valued and re-evaluate primary care?

The medical home model moves us in the right direction. It's the right idea. But as it stands now, it won't meet the needs of the most vulnerable patients -- those folks with the multiple chronic conditions, those folks with geriatric syndrome.

Senator Lincoln, you have legislation that gets at the importance of geriatric assessment, for example.

Senator Wyden, you have legislation that looks at the importance of making sure we can deliver care to people at home.

Right now, the medical home is not there. We need to evolve it. So we need to think about this as getting to primary care payment that pays for the right services based on patient needs, which probably means some kind of a risk-adjusted model that's matched to patient complexity and covers those things like geriatric assessment and care at home and making sure we have the link to community-based services. So putting the patient lens on some of these things, I think, helps steer us in the right direction.

With respect to your question, Senator Menendez, about women having particular needs, that's another example of us needing to ensure that we're matching what we pay for to the actual patient needs. And I think the important thing here is that we want patients to be able to choose where they get their care, and, for many women, an OB-GYN is their provider of choice, but we then need to make sure that those OB-GYNs are providing the full range of primary care services or linking to those services so women get the full range of services that they need.

So I think there are ways we can move in the direction of ensuring that women in their peak reproductive health years, that have a range of needs, have those needs met in the context of getting comprehensive primary care.

I want to reinforce for folks --

MR. IGLEHART: Can we -- we better move on.

I want to ask Dr. Naylor to follow up. Her team at the University of Pennsylvania has done a lot of work targeting the chronically ill, elderly population.

What lessons can we learn from the research that you and your team have done, Dr. Naylor?

SEN. BAUCUS: Dr. Naylor, you might remind us who you represent.

MS. NAYLOR: I represent the University of Pennsylvania School of Nursing.

SEN. BAUCUS: Okay. Thank you.

MS. NAYLOR: And I have had the great fortune to work with a terrific multidisciplinary team based at Penn from the schools of nursing, medical school, Wharton, et cetera on testing a model designed explicitly to look at the challenges and issues around the 20 percent of older adults who are waking up each day with multiple chronic conditions, often complicated by cognitive impairment, depression, and for whom we have not yet figured out how to well serve them.

So we have been testing and refining an approach. It's called transitional care and it targets this high-risk group as they are at their most vulnerable, as they have acute episodes of illness, explicitly designed to interrupt this chronic illness trajectory that constantly brings these elders in and out of the hospital.

And across multiple multisite studies, we've demonstrated consistently the capacity of this approach to care to improve their outcomes, to improve their function, quality of life, to improve obviously their satisfaction with the care experience, as well as their family caregivers' satisfaction, to significantly reduce hospital readmissions and to save health care dollars. In our last clinical trial, we were able to improve outcomes and reduce readmissions through 52 weeks post -- after the index hospital discharge, at a mean savings per Medicare beneficiary of $5,000.

So what are the lessons learned and how have we -- can some of what we've learned contribute to this conversation today? Well, the first is that I think we have a great opportunity here to target this 20 percent who are not well served by our current care system. I think we have a great opportunity to apply evidence built over many years to apply to this population. Across our work and across many other studies, we have learned that delivering services to this population is a team sport. It requires the input of nurses, physicians, mental health specialists, therapists, social workers, pharmacists, and it requires continuity of care.

Consistently across clinical trials we've demonstrated that nurses have been most successful in directing this approach in patients' homes, in the emergency department, in the hospitals, wherever it is that their needs are, and making sure that all the physicians, all the other team players are on board with a rational, streamlined plan of care. We think that in terms of lessons learned it would be very appropriate for us to focus on the development of new measures, measures process and outcome measures, that are much more closely aligned with the needs of these people.

Quite frankly, most elders don't care what their hemoglobin A1c is. They want to know that people have prepared them for their next site of care. They want to know that they have a person that they can point to when they have questions or concerns, et cetera. So we know what the process measures are that are important to these individuals.

In terms of outcomes, they're concerned about function. They're concerned about quality of life. And we need to be thinking about the development of measures that therefore support the development of team approaches to get at these.

Finally, let me say that we do need a different payment system. In order to accomplish the goals that we've outlined on top of our fee-for-service system, we really need to target a transitional care benefit that would enable this approach to care to be available to Medicare beneficiaries who are at high risk, who require much more than we currently provide, again, in order to interrupt this cycle that we are clearly able to do, our evidence has shown us.

MR. IGLEHART: Senator Grassley, please.

SEN. : (Off mike.)

MR. IGLEHART: I would just ask that Senator Baucus's question about is this scalable -- your model?

MS. NAYLOR: First of all, I think this model is highly complementary to great primary care, to great chronic care, to the independence at home initiative, to the chronic geriatric assessment and chronic efforts approach, et cetera. We have worked in collaboration with Aetna and with Kaiser Permanente to translate this model into the real world of clinical practice and have demonstrated its capacity to replicate both clinical and economic outcomes. We have developed tools of translation, Web-based training modules to prepare nurses and other providers throughout the country to deliver this, clinical information systems that house the evidence that make it available to colleagues in Maine and Iowa and every other state across the country. We have created quality improvement tools and strategies to make sure that we continue to invest in building the team's capacity to do this.

We place a high premium, though, on providing and preparing family caregivers to do this because, in fact, they're the primary deliverers of care in this country. And we have not paid enough attention to their needs so we have provided tools also for these family caregivers in order to make sure. So it is absolutely scalable.

MR. IGLEHART: Senator Grassley.

SEN. GRASSLEY: Yeah. I want to bring up an issue that I have to get some comfort with over the next two or three months as we try to put together a bipartisan package and it's the irony of, on the one hand, people saying we have to spend more on health care, and the other one, that's been evidenced here, that we are wasting a lot of money. Like Senator Wyden said, ($)700 billion; like was just said by Ms. Ness, better value for health care; like Dr. Steele said, we can increase quality, reduce cost. You've heard Senator Baucus and this senator say on so many occasions that if they practiced medicine in the rest of the country like they do for Michigan over to the Northwest, Pacific Northwest from Kansas north to Canada, we'd save one-third of all the money we're spending on Medicare, as an example.

So this is what I would like to point out and get any two or three of you to respond. And I don't call on anyone to respond. I'd like to point out the irony that we're talking about all the unnecessary and inefficient spending that we have while also looking at increases in spending even more on health care reform during this debate as we try to put together a bill.

How long will it take to set a course to improve delivery and are we being bold enough and particularly on delivery reform? In other words, how do we make sure that we're really tackling delivery reform? Because if we don't, we're really setting ourselves up to make the costs worse, not better. And I don't call on anyone. Whoever feels that they can address it. But it's something that I've got to get some comfort with.

MR. IGLEHART: Mr. Williams?

MR. WILLIAMS: Yes. I would start out by saying that it all starts with the notion of starting where we are and working with what we have. And I think we have an enormous amount of capability in this system to improve quality and reduce cost.

By that, what I mean specifically is that the employer-based system has been a huge source of innovation and many of the things we've talked about this morning about Medicare and disease management have proven models that the employer community has embraced which have significantly slowed down the rate of increase for certain employers, and, at the same time, improved quality. And let me give you just a few examples.

One is if we can find ways to apply the irrefutable science base as published in peer-review journals by tapping into the information that we have in the system already, claim data which actually is much richer than many people think -- the pharmacy data, the lab values, and an individual patient level at Aetna -- we have sent out to physicians 480,000 care considerations based on data we know about the patient, with the patient's consent, and checking that against the irrefutable science base.

In the large percentage of those cases, those considerations have resulted in identifying gaps in care, identifying procedures that should be, screenings that should be conducted. And so, I think what we've done, and we're not the only ones who are doing some of these things, others are -- there's a huge opportunity to apply the strengths of the employer-based system to really help improve and slow down the rate of increase, both in Medicare as well as in the current system. So I think those would be some of the things that I would suggest.

MR. IGLEHART: Dr. Steele?

DR. STEELE: Senator, I think the leverage is in Medicare and I believe that if you instruct some sort of patient-focused goals on the highest utilization areas, which, as I've mentioned before, are generally the areas where we do least well in caring, and you give discretionary capability -- much more discretionary capability to some aspect of CMS to innovate for an evolution, and it's got to be done carefully, but you set a time limit and that time limit is obviously your discretion. And if you don't get where you want to go, which is patient-focused, in that time limit, then there's a Plan B. And I think that Plan B would be, you know, that's for you, but it should be pretty motivating.

SEN. BAUCUS: And what would some of the components be, of Plan B?

DR. STEELE: I'm not willing to say right now. (Laughter.)

SEN. BAUCUS: That's why we're meeting.

DR. STEELE: I'm interesting in pushing Plan A.

SEN. BAUCUS: All right.

DR. STEELE: Plan A is innovation. It's taking advantage of the market-based approaches. But it's insisting that for those four or five major utilization cohorts, we actually achieve some obvious metrics of significant improvement on both quality and value, and then we could talk about Plan B later.

SEN. GRASSLEY: Can I just follow up? And this is more of a comment, but it's also in the form of a question.

Can this senator, just for himself, assume since I haven't heard anybody on the panel suggest we need to spend more money, that maybe that's your conclusion, that we don't need to spend more money? Can I conclude that?

SEN. BAUCUS: No. (Laughter.)

SEN. GRASSLEY: Well, then I think somebody ought to tell me yeah, we've got to spend a lot more money.

MR. IGLEHART: I thought Dr. McClellan said we do need to spend a lot more money in Medicare and Medicaid.

Wasn't that your testimony?

DR. MCCLELLAN: Well, let me clarify this in two ways.

One is if you're going to ask CMS to do more and more quickly, to drive the kinds of reforms in health care that Dr. Steele has talked about, let's face it, they're going to need more support. They already have a very, very big job to do for a very sensitive and vulnerable set of 90 million-plus Americans and that's going to take some more support for the agency. I don't think that's really the kind of big dollars that you're talking about, though. I mean, you're talking about numbers like ($)700 billion.

And just to be frank, Senator Grassley, I think some of the proposals that you've heard about today do mean more spending, at least in the short term, like you did with health IT in the stimulus bill, like some of the additional payments for primary care, medical home that you've talked about today. I don't see any way to do that, to take those steps meaningfully, without spending more at least in the short term.

That said, as Senator Wyden said, we've got to show some results to the American public around closing these huge gaps in quality of care and reducing these unnecessary and potentially excessive costs. So if you were to link some of these reforms that might have some costs in the short term with real steps towards accountability for getting the results that -- sort of like you did for health IT. You know, you're going to have this additional spending but it's tied to meaningful use, which still needs to be worked out, but I would argue that that ought to be an actual impact on, demonstrated impact on improving outcomes, patient-level outcomes like Debra Ness talked about and reducing overall costs. If you have that same kind of model applied elsewhere, I think you could get to the point, with good measures, with accountability, could get to the point where you're saving significant amounts of money over time and demonstrating to the American public that they are getting better health care as a result of these reforms.

MR. IGLEHART: Senator Baucus, there are a number of senators who have questions.

I might ask these folks if they could write in their responses.

Is that all right, so we can get to the senators' questions?

SEN. BAUCUS: I do think it's more important at this point that the senators ask their questions, frankly.

MR. IGLEHART: Certainly.

SEN. BAUCUS: We'll play it by ear and see how this moves along.

SEN. BLANCHE L. LINCOLN (D-AR): Great, thank you.

Well, thanks to all of you all for being here.

And there's been an awful lot of talk about medical home and talk about how much we're going to spend and how much we're going to save --

SEN. BAUCUS: I wonder if, Senator, because Mr. Hackbarth, just to kind of -- while we're on this subject of investments and returns, if you might just spare a second to -- maybe MedPAC's got some thoughts, I'm quite certain, on how you spend a little bit to save more down the road.

MR. HACKBARTH: Yeah. Well, I largely agree with what Mark McClellan said. I do think that you're going to need to make some targeted investments in health IT, being the classic example.

MR. HACKBARTH: Those are the two big investments, in addition, of course, to universal coverage which is beyond Medicare's purview.

You know, we very much agree with the premise of what Senator Grassley said. The task here is to level down. We've got huge variation in health care spending, low spending per Medicare beneficiary in Iowa and Montana and my home state of Oregon, and dramatically higher spending in other parts of the country.

The task before us is not to figure out ways to bring up spending in Iowa and Montana and Oregon so it's closer to Florida in the name of equity. What we need to do is bring Florida down closer to the other states. And no offense intended to Florida or any other state, but I think that is the fiscal challenge we face.

One other lesson I think is important to note is the way health care is delivered varies a lot in that western quadrant of the United States that Senator Grassley referred to. There's not one single right way to deliver efficient health care. It can be done a lot of different ways. And so we need to respect that.

One other finding is that the resources we put into the health care system, the mix of specialists and the like, and where they locate, has a huge impact on spending patterns in locales. So, to go back to Senator Cantwell's point, the training process and the sort of people we are putting out into the health care system and where they locate will have a huge influence on local spending levels.

MR. IGLEHART: Senator Kerry?

SEN. LINCOLN: I didn't get to ask my question. (Laughs.)

SEN. BAUCUS: Well, Senator Lincoln, I guess you go next. (Laughs.)

MR. IGLEHART: Okay. (Laughs.)

SEN. LINCOLN: Thank you. Well, we've just talked about medical home and we talk about them, we've got them. I don't know. I never came in here thinking we weren't going to have to make an investment of spending in order to realize the savings that we want down the road. I mean, we're moving from an acute care system to a chronic management system and it's going to take resources.

When we talk about the medical home, one of the problems is that about 85 percent of Medicare beneficiaries would qualify. To me, it seems like what Dr. Steele is saying is that we may not get everything right off the bat but let's focus on the group that will bring us the greatest savings and the greatest example of the savings that we can have.

I mean, if you think about it, you know, we could do a much better job if we capture the real complex and expensive patients with multiple chronics if we also deal with the cognitive impairments as well.

So if you think that roughly about 20 percent of Medicare beneficiaries have five or more multiple chronic conditions -- but they account for 85 percent of our spending. So if we do some -- and we're working with the committee, Dr. Naylor, in those transitions like you're talking about in a model that would, I think, encompass a lot of what I've talked about, what Ron's talked about and others, where we'd use all of those models to reach that 20 percent that are 85 percent of the cost through a plan like we're talking about. And I mean, I just think that we have to be realistic about the steps that we take in order to get everyone covered.

When you talk about cost, I mean, we've got to make an investment. There's other countries out there that are covering a lot more people with a lot less percentage of their GDP than what we are.

So I hope that we will look incrementally at how we take the steps to get to where we need to be. But without a doubt I appreciate Ms. Ness and Dr. Naylor brining up, you know, the issue in terms of how we deal with these chronic care management schemes, as well as the fact that when you're looking at cognitive impairment -- I mean, that's a huge part. Those patients are three times more costly in the Medicare system, and that's going to be important.

The other thing is I did a tour, much like Senator Snowe, in taking a pulse on rural America and their health care. And to the issue that Senator Nelson brought up, in terms of the need for more primary care physicians, there's a critical need out there, but it's not going to just come by paying them more.

I got to tell you, I mean, when you go into these small communities -- and I'm full of them in Arkansas -- it's quality of life, it's education for their kids, it's jobs for their spouses, it's not just a reimbursement system. We've got to look at that, and the best way to look at it is to grow your own. If we residents into a residency program at the University of Arkansas Medical School they stay -- they're much more likely to stay in Arkansas than they are to ship in doctors from New York or Chicago or anywhere else to come practice in these small communities. Growing your on is the best way you can do it.

So I don't know if any of you all have comments on that, but I appreciate the chronic care issue, because I think for states like ours that are disproportionately elderly, disproportionately low- income and disproportionately in rural areas where they're difficult to serve it's going to be critical.

DR. NAYLOR: Let me also add that the level of satisfaction of health care -- the level of satisfaction of health care workers, providers that work in teams and complement each other is tremendously important, too. So physicians love the capacity to work in partnership with advanced practice nurses and others to complement the skills that they bring to serve these people. It's not going to happen by any one provider doing it alone. So we have to really foster a primary care system that is based on capitalizing on the expertise of health professionals as well as community workers and family caregivers.

SEN. BAUCUS: I'd like to say, if I might, that Senator Carper and Senator Kerry have been seeking recognition for quite some time, and they both have time constraints. So I don't know who wants to go first between the two of you, but I know they've both been seeking recognition for some time. So -- I know Senator Ensign, too -- you've raised your hand.

I know it was Carper a long time ago. I think you were ahead of Senator Kerry, actually.

Senator Carper.

SEN. THOMAS CARPER (D-DE): I'll be brief.

Thank you so much for being here. It's good to see some of you again -- and others to have a chance to hear from you for the first time.

Senator Cornyn mentioned Safeway, folks out in -- Supermarket headquartered out in California. I was there last Thursday and had a chance to talk with them about what they're doing in order to be able to basically provide health care costs for 200,000 employees in 2008 at the same level as the provided in 2004. And a lot of it is -- what they figured out how to do is to harness market forces, to incentivize their employees to do certain things -- to ultimately maintain their -- level off health care costs to provide better outcomes.

I studied a little economics -- not enough, probably -- as an undergraduate and graduate school, but I've always been intrigued by the notion of how do we harness market forces, how do we change behavior by harnessing market forces and incentivizing folks?

Like several of my colleagues, I -- over the recess period that we just concluded I held a series of listening sessions around the state of Delaware -- all three counties, I mind you. (Laughter.) Didn't take all that long -- (laughter) -- but they were good sessions.

One of the things I -- sharing with -- the folks at a session were talking about market forces, and I used a different example than medical care, and I just want to share it with you. And we have been trying to figure out how to mitigate against home foreclosures. Lot of people -- millions of people facing home foreclosures -- how do we do that? How do we get mortgages to be modified in order so that folks can stay in their homes -- lower interest rates, whatever -- stretch out their mortgage payments? We found that one of the keys in all this is an outfit, or a person called a servicer -- a servicer -- the people that we send our mortgage payments to -- and they then take that money and they send it out to the investors, the people behind these mortgage-backed securities around the world.

And we're trying to push for foreclosure mitigation, and we found out that the mortgage servicers didn't want to help modify mortgages to help folks out. Why not? Number one, they didn't get paid for it. Number two, if they did it they'd get sued by the investors. Now, if you're thinking about how to harness market forces to get things done, that's a pretty good -- and the key person is the servicer, and they know if they're going to help you modify a mortgage they'll get sued and they're not going to get paid for it, why should they get involved?

And at one of our listening sessions we started talking about fee-for-service. If you're a physician you get paid for doing more procedures. You get paid for maybe ordering my tests; especially if you own a facility you get paid for maybe having more lab work done, more MRIs, more X-rays. But the other thing that kind of drives that behavior, aside from fee-for-service -- if you don't do those things and there's a problem -- somebody gets hurt, somebody dies -- you get sued. You get sued.

What we did with the servicers in the mortgage foreclosure deal is we provided them a safe harbor. We provided them a safe harbor in order to try to repair that. We also gave them money up front -- out of the TARP fund, as I recall -- to actually pay them for doing the work. And then we said, if you do this work and you help work out mortgages, we'll make sure that you're in a safe-harbor situation.

Some people who screw up and kill people in hospitals and who seriously -- they ought to be sued. They ought to be sued. No question. A lot of people die; we know all that. But in terms of a safe harbor and the idea of trying to work on this market force deal where we incentivize people to do more services, more procedures and so forth -- and by doing that to protect themselves from being sued, how do we balance that out? And does this safe-harbor idea -- is it something that might be extended to health care?

MR. IGLEHART: Any comments?

Yeah, Peter --

MR. LEE: One, I -- you know, 160 million Americans are covered through their employers. Employers believe in the market. And I think you've heard a lot of examples about payment changes that move to get the market to work. So it's not fee-for-service; we're bundling; we're sort of bringing payments together. Doing that, though, I think we need to have a market that actually brings together the public and the private sectors. We don't have enough of a market signal from any providers when they're dealing with many different health plans, CMS. And so how do we align payment so the market is working, because we have aligned signals? So that's one.

The second thing I'd note -- and I really cannot agree enough with Senator Grassley's note about needing to be bold, because employers and Americans are being crushed by health care costs. So we do need to be bold. We need to make some rapid steps. But part of the challenge is we don't, in many areas, have enough of the right measures to say who is really doing the right job, which doctor is using resources most effectively, which one is doing a better job for patients in terms of getting outcomes? And so we need investments in having better measures so we know what we're rewarding.

And last, if I could, Senator, I think that your idea with regard to medical malpractice is a very important one. We should look at -- if you're a doctor that's following the guidelines do you get a safe harbor? And this is -- again, we should be looking and encouraging doctors to follow the evidence, to have the tools to do a better job with market forces. And I think there's tools we can use.

MR. IGLEHART: Senator Cantwell?

SEN. CANTWELL: Yes. On this question of efficiencies and savings, isn't there a big opportunity in cost-savings in the area of long-term care and shifting our focus to community-based care, particularly when this dual eligible Medicaid and Medicare population is something like 44 percent of the Medicaid spending and 25 percent of the Medicare budget?

I mean, Mr. Diaz or -- I mean it's something like -- states that have implemented community-based care programs have saved like 7.9 percent, or seen a decrease, and those states that don't have those programs have actually seen an increase?

MR. DIAZ: There's no question that there are still significant opportunities to take advantage of home and community-based services. At the same time, I want to echo some of the comments we heard earlier. I think that in order to better navigate the transitions in health care -- and we see in our own experience almost 47 percent of the patients going though our long-term, acute-care hospitals and our nursing and rehab centers (axing ?) home care. But it's about navigating the transitions. And the investments that have been talked about, particularly in physician-directed nurse managers, that's where we see the greatest opportunity -- to bring an interdisciplinary team together to manage these transitions, prevent avoidable hospital readmissions.

I do think that it is not a zero-sum game, though. I mean there -- the different sites of service, properly managed, with the right, you know -- improved regulation and certification, can help us reduce costs and move patients through the system and keep patients from re- entering the system whenever possible.

But at the heart of it, I think, is a physician and a care manager. And there's plenty of evidence out there from Hopkins and others that there's a great opportunity to do that.

MR. MCCLELLAN: Just to add to this, Washington state has some experience with putting more of an emphasis on home and community- based care leading to measurably better outcomes for patients. They're more satisfied. Their caregivers are more satisfied and lower costs per person. And this is an area where Medicaid programs around the country, including in Washington, have led the way in making these reforms.

What they generally do, though, is not just focus on community care but focus on the person. Give the individual person with the long-term care needs or their care -- and their caregivers more control over how resources are spent on their behalf.

And then they choose the best way to get their care. Maybe it's at home, maybe it's in a group home arrangement or something like that.

This is harder to do when the Medicare program is involved, because for people who are on both Medicare and Medicaid, it's separate funding streams. It's one stream that comes through Medicare with all the Medicare services and another one that's managed primarily by the states through Medicaid.

There are some good examples there of programs that have put it all together, including a program called Evercare that was actually started by some nurses because they were so frustrated with all of the preventable hospitalizations and complications and medication overuse and misuse that was happening for this very vulnerable population. They put it all together. They demonstrated that they're delivering better care.

So the experience from long-term care services and supports is that if you give people more control and have good measures and accountability around the outcomes that you want -- reducing complications, avoiding hospitalizations, getting overall costs down -- you can get much better results.

SEN. CANTWELL: Well, if the savings for Washington state have been in the hundreds of millions wouldn't it be in the billions nation-wide if we implemented the same system?

MR. MCCLELLAN: Absolutely could be.

SEN. BAUCUS: Senator Ensign, you've been seeking recognition for a long time, here.

SEN. JOHN ENSIGN (R-NV): Yes. Thank you. Thanks, Mr. Chairman.

I want to go back to it a little bit because it really hasn't been emphasized -- a couple of senators did, but the panel really hasn't addressed it that much.

Ms. Ness, when you talked about patient, you know, centered care -- one of the things that really hasn't been talked a lot about is patient accountability -- in other words, the patient having skin in the game financially. A couple of people have kind of touched on it, but that's really, I think, what Safeway and other private, basically self-insured companies have discovered.

And you've mentioned some up-front costs that later on you get return. Well, Safeway's experience was they actually saved almost 12 percent the first year. It wasn't a long-term savings, because they actually had the patient put something into the game.

And I actually believe that we can model even some of our Medicare reforms along the lines of putting the patient in the accountability loop, especially because of the idea of information technology and putting transparency in the system both on costs as well as outcomes.

We understand there's huge differences between what one colonoscopy costs three miles away from what another colonoscopy costs, or MRI versus MRI, or whatever. But there's a few diseases that we understand take up -- maybe not in the (Medicare ?) population, but actually even in the Medicare population -- a few diseases take most of the health care cost, and we can focus -- you don't have to focus on 500 diseases, you can focus on a few of them. And that's what Safeway did is they focused on basically four areas: obesity, smoking, heart disease -- especially hypertension -- and diabetes. And even if you have something like that, if you manage it properly you can save huge costs. If you're a hypertension person and you're taking all the proper drugs on the hypertension case, you can -- if the patient has the incentives, the financial incentives, the skin in the game, so to speak, they can manage that not only that it's better for them but is also better for the system.

So I actually would argue that we don't need more money in the system. We need to spend our money more properly and have the incentives.

A couple other points to make on this, and then anybody who wants to comment on this -- and obviously obesity is one of the biggest problems that can -- and our children, okay -- the massive obesity rates that we see in our children are going to hugely explode medical costs as these folks get older if we don't get control of it. But in all of adult population -- I think the statistics are something like 40 percent of Americans are considered obese, okay, not just overweight, but actually obese. And that -- you know, those numbers are startling and it contributes to all of the other factors.

We only allow 20 percent of the current premiums cost to be incentivized through -- or the total of the premiums to be incentivized as positive incentives. We need to raise that so that we can truly reflect what it costs to insure a smoker, okay. Incentivize them to quit smoking what it costs to actually insure somebody who's overweight. Not to penalize somebody who is genetically predisposed to that but incentivize them to get on weight loss programs and exercise programs.

All of these preventative things -- it was always told to us, these are long-term benefits. Safeway has proven, and other companies have proven, actually the short-term costs are there and we need to talk to CBO and some of the other people about scoring this thing properly so that we can put these incentives in our private health care system as well as Medicare and Medicaid to long term and short term save total costs for the system so we actually will have the money to be able to take care of the uninsured. I believe that that's what Safeway's discovered is harnessing those market forces through incentives, once again, for the patient -- this is patient-directed, but it's also patient responsibility. And I think that both of those things need to be in our health care system along with a lot of the other reforms that you folks have been talking about today.

MS. NESS: Senator, I couldn't agree more that a key component here is getting to real patient engagement in managing their health and making better decisions about their health care.

And you identified the three operative things that we have to have in place. We have to have the right information and tools for consumers. And that gets directly to transparency, it gets to what Peter Lee was saying about having measures that are meaningful to consumers that help them be able to make judgments about which providers they should see. It also gets to the importance of comparative effectiveness research so we know what works and what doesn't. We need to be able to give patients the information that would enable them to make better decisions, to see the differences. That's part of engaging them.

A second thing is we need to make sure that we give them the right benefit design so the incentives are there. And incentives to engage in healthy behavior is one type of incentive. Incentives to be able to better manage your chronic condition is another set of incentives. And we know there's experience out there of plans that have designed benefits that, for example, reduce co-pays for the kinds of medications that help people with chronic conditions manage their condition. Compliance goes up, people stay out of the hospital. So the right benefit design is critical here as well.

And one other thing I want to say is that we are now learning how valuable shared decision-making tools can be. These are tools, informational tools which tell people, for their condition, what are the range of options, what are the pros and cons and allows them, with their health care clinician, to make a decision that weighs those and is consistent with their values and preferences. And guess what. When people use those kinds of tools they tend to make decisions that are more conservative. They tend to get better outcomes, have higher satisfaction and lower costs. So patient engagement is a great thing. We need to make sure we give people the right information and tools.

MR. IGLEHART: Senator Cornyn.

SEN. CORNYN: I have a question for Mr. Morris -- and I'm responding or reacting to the question by the ranking member that some have addressed -- whether the United States is spending enough money to deliver health care.

As the chairman, I think, pointed out, we spend more as a percentage of our gross domestic product than any other country in the world. My hope would be that before we spend more money we look at the money we do spend and see whether it gets lead on the target -- whether it's effectively spent delivering health care -- as opposed to, for example, the $60 billion that The Washington Post has reported was lost to Medicare fraud each year alone. That's just Medicare. According to the Centers for Medicare and Medicaid services last fall, 10.7 percent additional is lost through Medicaid fraud.

So in light of the fact that Medicare and Medicaid are the mainstays on the Government Accountability Office's list of high-risk programs, would you be concerned that any new public plan option or perhaps Medicare for all, so to speak, would be vulnerable to waste, fraud and abuse? And what do you think you need -- what are the -- what kind of tools does the Department of Justice need in order to root out this kind of waste that does not go into delivery of quality health care for the American taxpayer?

MR. MORRIS: Senator, first let me say that we in the law enforcement community very much appreciate being part of this discussion.

MR. : (Off mike.)

MR. MORRIS: I think so -- it's on now.

I don't pretend to be a health care policy wonk, but I do know from the perspective of law enforcement that building and reforming this program has to recognize that waste, fraud and abuse not only takes money out of needed health care but promotes cynicism on the part of the taxpayer who believes we're wasting their dollars.

We begin with the premise that how you build a system will define how the unethical will cheat it. So for example, if you operate on a pay-for-service basis, the incentive is to over-utilize. If you operate on a capitated system the incentive is to underutilize. So to address the current system as well as to think about how to effectively protect and expansion of the health care benefit to make Medicare a system for all, to use your suggestion, we believe there are five principles that should be brought to the analysis. And there are a series of recommendations that stem from each of those.

Let me hit those five very briefly.

First, we think that we need to scrutinize the individuals and entities that want to participate as providers and suppliers before we allow them to enroll in the program. We need to move from thinking about these programs as a right to a privilege. This means scrutinizing who they are, looking at their backgrounds, making sure they are accredited and can perform the services that we're allowing them in to treat our beneficiaries and have access to our trust fund dollars.

Second, we think we have to establish payment methodologies which are reasonable and reflect changes in the marketplace. In my written testimony I give just one example of the many audits and inspections we've discovered that we pay way too much for services. Oxygen concentrators -- we pay $7,200 for the rental of an oxygen concentrator you can buy for $600. Not only is that a waste of taxpayer dollars but beneficiaries are paying co-payments. So this is impacting not the only the program but the very beneficiaries we're trying to help.

In addition to saving dollars, we think having methodologies that are responsive to changes in marketplace reduce abuse. It's been our experience that many of those who come into Medicare and Medicaid to commit fraud see these enormous dollars out there and actually use some of those excess profits to generate kickbacks to produce more referrals. Perversely, they are using our money to generate further scheme.

Third, we need to assist health care providers and suppliers in complying with our program requirements. It's a complicated set of programs. The vast majority of providers and suppliers are honest. They want to comply with the program, and they need all the help we can give them. Part of that, we believe, means requiring that as a condition of participation, providers, suppliers and practitioners have compliance programs in place. These should be tailored to the particular type of practitioner supplier and should be also measured to the sort of risk that they present. But we think it's incumbent on those who are going to participate in our program have internal controls to ensure they're doing it right.

Fourth, we think it's critical that we do a better job of vigilantly monitoring the programs for evidence of waste, fraud and abuse. This requires better data systems. This requires us to be able to better sense how claim patterns and trends are occurring. It requires that we have a better sense of who these providers are and build large, adverse provider databases so we know who's coming into our system and where they've been before.

Finally, we think we need to do a better job of responding swiftly to detected frauds, imposing sufficient punishment and promptly remedying program vulnerabilities. We have in place, with our partners in the Department of Justice and U.S. attorneys' offices, strike forces throughout the country, which are going in and targeting target-rich environments like Miami and Los Angeles and Houston and Detroit where criminal elements, organized crime has come in and is preying on our program. And through effective use of prosecution and investigation we're putting a stop to it.

Now, a question that's been raised throughout this panel is, will it take resources? I think it will. I think in order to build effective databases, in order to more effectively monitor the system and respond promptly to these vulnerabilities will require resources.

But I'll also tell you that I believe that there will be a tremendous return on that investment. By way of example, over the last three years, for every dollar that was spent on the inspector general's office to combat waste, fraud and abuse, we've brought back $17 to the Medicare Trust Fund. So I would submit to you that it's a good investment.

SEN. CORNYN: Thank you.

SEN. BAUCUS: I'd like to follow up on that, if you don't mind, that same question that Senator Cornyn asked. The question is, where is the waste? Jack Wenberg says there's a lot of waste. CBO says there's a lot of waste. That 700 figure is a CBO number. Senator Cornyn asked the question about fraud, waste and abuse.

So the question is, How much of the waste is fraud, waste and abuse, and how much of the waste other inefficiencies in the system? My sense is that there's waste in -- partly because practice patterns vary significantly all across the country. And I remember when Uwe Reinhardt testified before this committee -- Princeton -- oh, maybe a few months ago. He said he checked with three different hospitals in New Jersey to see how much each spent in the last six months on end of life, at three different hospitals. I've forgotten the ratio, but it was wildly different between the most expensive and the least expensive. And he called them all up asked them, why do you -- why? Why are you spending three times, or whatever it was, the other hospital is spending? The answer is, it's just the way we do it. (Laughs.)

And my sense is that there's a lot of waste, therefore, in addition to fraud, waste and abuse, which we've now discussed -- and you, Mr. Morris, terrific job in outlining ways to address that. My sense is that there are also other areas with a lot of waste in the system, and I wonder if anybody else wants to comment on that.

Dr. Steele.

DR. STEELE: All the publicity on this single price that we've gotten -- called a warranty -- is not the real substance of what we've done. The substance is re-engineering our care. And the way we did that was to get rid of all unjustified variation. And the way we got rid of unjustified variation was to have our professionals either take consensus or evidence-based best practice off the shelf or forcing them into an evidence or consensus-base themselves. And that's the real beauty of increasing the quality and decreasing the value. Everything -- you know, everything was publicized as the warranty, but it was really going after the unjustified variation.

And so, I couldn't agree with you more. And if you define best practice in many, many parts of the country, in many markets and different system and somehow get an engine to disseminate that best practice, that would be a real way of making significant advances in these high-cost cohorts that we've been talking about all day.

The other thing, Senator, is that the docs and the nurses get tremendous pride of purpose in leading these changes. It's not as if you're forcing them to do it. They think it's cool. And there's nothing like having a professional lead this if you want to get something done.

SEN. STABENOW: Chairman.

SEN. BAUCUS: Okay, Senator Stabenow.

SEN. STABENOW: Well, thank you, Mr. Chairman.

Just to follow up on that point -- I guess one of the questions -- I've had a couple of different questions in terms of how we get to where we want to go in terms of quality, the comparative effectiveness and so on. How do we get from the lab bench to the patient's bedside on this information? And I'm -- I know that last year we heard from the RAND Corporation that we only receive necessary preventative care services and recommended care for acute health problems a little more than half the time.

So now, in Michigan we've had a wonderful program through the Michigan Hospital Association -- the Keystone Center -- which is now being expanded out through pilots. But I guess the first question I would have is how do we get from the lab bench to the bedside? And then, secondly, as we talk about pilots -- we -- I think several people mentioned the slowness of turning these things around. I know that in talking to one of the demonstration projects that the University of Michigan health care system was involved in, it was a Medicare physician group practice demo, pay-for-performance project authorized in the year 2000 -- didn't start until 2005. And so, you know, how do we move these things? How do we make these things happen?

MR. OPELKA: Senator, thank you very much. Frank Opelka with the American College of Surgeons.

I think that -- you know, the way we look at this is -- in the past -- has been, at least for me, over almost 30 years practicing surgery, I never knew what my results were. And it is only now that we're actually starting to see some of the tools that are coming out showing me what those results are. I think we need -- we have a lot of data, but it's claims data alone. And we don't have a robust clinical data system that actually starts to drive this. And Glenn has piloted some of that into his own programs by taking his data and looking at what he does. In surgery we have several tools that we don't have well disseminated across the country and we need to get them disseminated.

Beginning in the VA in the mid-'80s they developed the National Surgery Quality Improvement Program. That shows an enormous improvement in the quality of care, decreased length of stay, better overall outcomes for the patients. And it has a return on the investment, but it takes an initial investment to get out there -- for a hospital to deploy that resource. We've got a trauma system that actually is successful but it varies state by state, so we have our own variation in trying to implement a national trauma system.

We need to put those systems together and we need to join a lot of these efforts with our chronic disease management and how we actually create the coordination of care across those disease management systems, taking something like the STS thoracic surgery cardiac database and combining that with a cardiology database, combining that with the claims data so we have clinically enriched data sets. Our data systems are all in silos and we not unified on looking at a problem together and designing a solution.

That is an opportunity, I think, that the Senate can help pull all that together to put things like the National Surgery Quality Improvement Program in every major hospital that's performing every major type of surgery, to bring that together to link the trauma systems that we have and bring all that together to combine our chronic disease issues and outline those together where we need them.

It starts with the data. And I think physicians respond to data. And then when they get the data we have an opportunity to change the culture. Right now our culture is more is better. And whether we practice defensive medicine -- whatever it is -- we practice a culture of more is better, and it isn't. In fact, more may be harmful to patients. It's the right cure at the right time for the right reason.

It has to be data driven. Whether or not we have true bona fide absolute evidence, or whether we just have observational data, we've got to make these decisions in a more unified manner.

MR. IGLEHART: Mr. Umbdenstock?

MR. UMBDENSTOCK: Could I piggyback on what Dr. Opelka has just said? We've got two very specific examples, and Senator, you raised one of them, which is the Keystone Project around central line infection prevention.

And based on the success of that, starting with knowing what works and having the results to prove it, we've now leveraged that through a grant through our Health Research and Education Trust to take out to 10 states and we've had to turn states away because they're so anxious for this information and this support in order to take care of that kind of problem. So I think with the results and with the knowledge comes the speed and the flywheel effect.

We've also seen it with the Hospital Quality Alliance where hospitals now for five years have been publicly reporting against consistently defined and agreed upon measures and we're starting to see that in fact the frequency with which patients receive the agreed- upon process steps and care steps is increasing significantly.

So again, with the information and with the knowledge that in fact we're going to invest in something that's going to in fact make it better for patients and providers alike, we see the flywheel spinning much faster.

MR. IGLEHART: Senator Wyden.

SEN. WYDEN: On this point -- because I think the chairman is right -- I think we're getting close to wrapping up the morning session -- to keep coming back to squeezing out the inefficiency and squeezing out the areas where there are additional savings. I want to put one other element into this discussion of efficiency.

If you watched the entire morning session, I think you'd probably walk out of here and say what Glenn Steele's come up with sounds like the greatest thing since night baseball and I want to sign up for that Geisinger-Steele program. So then you unpack it through to today's system.

If you're lucky enough to have employer-based coverage in this country, more than half of you don't even get a choice about what your coverage is, so more than half of the people wouldn't even get a chance to go to Geisinger. Then, in that system, you don't get any financial reward under today's system for choosing the Geisinger kind of approach.

And I think I wanted to just wrap up with a question on this point for Dr. McClellan and Peter Lee. How important is it, in your view, to make sure that people have more choices? By the way, everybody up on this panel has plenty of choices. We've got plenty of choices of good-quality packages and I think the American people would like to have the kind of choices our members of Congress have and not just have one.

But how important is it to have more choices and then to get a financial reward for making the careful selection of a Geisinger-like good-quality package -- Dr. McClellan and Mr. Lee?

DR. MCCLELLAN: Senator, I do think it's important and Senator Ensign highlighted the value of these kinds of choices as well. You pointed out some critical elements. One is that you can save money if you choose less expensive care, if you take steps in your own life to bring cost down.

And we've heard from the panel about the importance, going along with that, is good information and support in comparing across these choices, making informed decisions about your health. We don't do as good of a job as we should in supporting those kinds of decisions to promote this sort of effective competition. And I think you really do need to take this holistic approach in the end if these reforms are really going to work.

Chairman Baucus emphasized that, look, you know, even if we find ways to improve specific aspects of care, the fact of the matter remains that there's still these huge variations in overall cost and utilization. You know, we can do a great job -- and we should -- of improving the efficiency of a hospitalization, reducing the complications during a hospitalization. But as you point out, hospitalization rates and hospitalization days vary two, three, fourfold around the country.

So there needs to be a further step that focuses at the level of the person around choices to enable them to find better care at a lower cost, information to support those decisions and then ways for health care providers and insurers and new Internet companies, you name it -- who knows where health care is exactly going to be in 10 years from now -- but supporting those kinds of reforms that get people better care at a lower overall cost has got to be the bottom- line goal here, and choices done right are a very important part of that.

SEN. BAUCUS: I want to focus back -- I'm sorry, go ahead.

MR. LEE: Absolutely, choice is critical. And so as we've heard a lot on this panel about the importance of choosing treatments, choosing lifestyles -- but you've taken it up the level of choosing a health plan. And some large employers actually have incentives to pick that better plan. If you don't have a choice though, you've got nothing there.

And so I think that what we've heard across this panel of needing information to say which is better in terms of quality of care and in terms of the cost-effectiveness linked to incentives, linked to tools to use it. And I think when we look at a delivery system, that needs to also include choice of plan so people can make the choice between which plan is the right one for them as well.

SEN. BAUCUS: I think Dr. Hackbarth --

MR. HACKBARTH: Yeah. I just wanted to chime in on Senator Wyden's point.

I absolutely agree with you, Senator. In fact, I think that was one of the cardinal lessons of the managed care backlash of the 1990s. Employers, at least many of them, restricted choice and they grabbed the savings for themselves, as opposed to giving their employees a choice -- a cost-conscious choice of alternatives.

And I think it's very important as we try to change the health care delivery system that the patients -- the enrollees in health plans feel invested in the process that they're making choices and they're benefiting from the choice of more efficient alternatives. Otherwise, we'll have another backlash and things will unravel on us.

SEN. BAUCUS: I'd like to focus a little more on CMS -- what investments, what changes are needed. Presumably, we in the Congress can't dot all these i's and cross all these t's and how all this is implemented. I sense there's a lot of agreement on what the general approach should be, but the question is how do we execute? How do we implement?

And CMS is a major player here and I think Dr. Steele -- decent ideas -- empower power CMS to be more flexible and empower them to come up with some solutions that we're all talking about here. So what changes and what investments are needed at CMS?

MR. IGLEHART: Down at the other end. Mr. Diaz?

SEN. BAUCUS: Yeah, Mr. Diaz.

MR. DIAZ: Yes, thank you. I want to comment from the perspective of a multistate provider. We operate in 40 states. We live in a public and private world but work with partnerships with private plans and Medicare and Medicaid for some of the very chronic patients that we talked about today.

And we talked earlier about the potential for a broader mandate, and it seems to me that's part of the opportunity here, that there are immediate savings and immediate benefits to patients by a broader mandate to, you know, MedPAC's authority. When we look at some of the dislocation in the managing the transitions of payments, we see that in the dislocation between the Medicare and the Medicaid program.

And we see that CMS -- all the well-intentioned folks there -- typically regulate and develop policy based on silos -- long-term acute care hospitals, skilled nursing facilities -- with very little study of the interrelationships and the opportunity to better coordinate care.

So I think there is an opportunity -- consistent with many of the comments we heard today -- for a broader mandate of looking at how we move past the silos, again, having physicians and care coordinators as the real drivers of the engine and that there are immediate opportunities to bring down those silos and give MedPAC and give CMS a broader charter to look at those opportunities along with looking at the opportunity for the private plans as well.

MR. IGLEHART: Mr. Hackbarth?

MR. HACKBARTH: I'd say three things, Senator, and these have been mentioned by other people. They need more money, more resources, more people to do the task that they've been assigned. They need less detail, less prescriptive legislation, more latitude to make decisions -- subject, of course, to proper oversight.

And third, I think we need a different model of how we innovate in the Medicare program. Right now it takes six, 10 years for a new idea to sort of work its way through the process. If it's a large- scale test it needs congressional authorization for the money and takes a couple of years to design, recruit participants and then you have three years of the project, a couple years of evaluation -- it goes back through the legislative process.

That way of developing new payment models for the Medicare program is way too slow for our needs and so we need to look at each step of that process and see if we can cut out steps in time. And one idea that Glenn Steele has mentioned is the possibility of sort of a standing network of providers that can pilot ideas on a fast turnaround basis. That would be one idea. There are others as well.

SEN. BAUCUS: Thank you.

MR. IGLEHART: Dr. Korn?

DR. KORN: Very briefly, Senator -- agility. If Aetna and Independence Blue Cross could come together to support a medical home model in Philadelphia, why isn't Medicare at the table? Of all the innovations that the insurers are rapidly using across the United States, given the combined market share and the impact on a physician's practice to rapidly share in these pilots and innovations on a local basis would, I think, advance knowledge very rapidly.

MR. IGLEHART: Mr. Lee?

MR. LEE: Alignment of CMS partnering with private plans is incredibly important, but I've built on everything that Dr. Hackbarth said in terms of the decision process -- to change who's at the table. And Debra Ness noted this, but in terms of having more agility -- ability to rapid cycle authority, that Congress needs to grant an appropriate way so CMS can act, but then who should be at the table? I come back to a patient center.

And we have too many decision processes that has -- with all due respect -- only those who are actually getting paid at the table. Not having those that are actually getting care -- patients, consumers -- as well as those employers and others that are paying the bills.

MR. IGLEHART: Ms. Ness?

MS. NESS: Yes. And just very briefly, building on what Peter just said, I think we need to make sure that the innovation, the demos, the pilots, whatever is it that we're doing, we do begin to integrate the private sector and the public sector components. We can't have the innovation going on in silos.

MR. IGLEHART: Dr. Opelka?

DR. OPELKA: You know, one of the things that we learn is -- with our other insurers -- is we sit down and partner over issues and try and come up with innovative solutions together.

We don't do enough of that with CMS and I think there's a real opportunity to actually sit down, put a problem on the table and try and solve it more collegially together and have the ability to move more nimbly than we currently move.

Total system redesign: Because of the cost and need to redesign chronic care, as Mary has said and as John has said, we totally support that within the college. I think that we need to enhance how we do the value assessments on the outcomes-based care initiatives, like surgery, cardiology -- other areas other than primary care. How are we looking at what we're doing to know that we need to do those procedures, they're absolutely necessary? Where the overuse is? We need to actually cut back on where we've got defensive medicine that's really just running up the cost. And so the safe-harbor concept, I fully support that.

And lastly, preserving the key elements of the surgical work force is important. Trying to pull monies out of the surgical workforce to start up and fund other initiatives could actually have a real deleterious effect on how we maintain the surgical work force.

Mr. Chairman.

MR. IGLEHART: Dr. Steele?

DR. STEELE: You know, again, I think the narrative is important. And if we focus on where we are now with some of these incredibly poorly cared for, high-cost groups of patients and you give direction that you want to get to another place over a period of time, and you hold CMS responsible for creating the innovation to do that, as opposed to the much more specific, granular kinds of instructions, then the only thing I would add is, if you actually do this health care reform --

SEN. BAUCUS: We're going to do it.

DR. STEELE: It -- CMS --

SEN. CHARLES E. SCHUMER (D-NY): He means it, too. He means it.

DR. STEELE: Your goal should be to have CMS as the workplace that everybody wants to be a part of because you're going to be dependent upon the human resource over there. And it should be the place where people want to work if they want to work in government.

SEN. BAUCUS: That's a good point. How do we accomplish that?

DR. STEELE: Well, we could talk later.

SEN. BAUCUS: Okay.

SEN. SCHUMER: Mr. Chairman?

SEN. BAUCUS: Yes?

Anyone else want to address this one subject --

MR. WILLIAMS: Yes, Mr. Chairman. I wanted to get a point in here, if I may. Just a couple of points on CMS.

One, I think this notion of public-private partnerships are extremely important and one of the things I would continue to encourage is the ability to share claim and clinical data between Medicare and the private sector so that we enrich both the claim database as well as the quality database, building on National Quality Forum-approved data.

Innovation is fundamentally important. Two years ago, we had zero members with the personal health record. We now have 10 million members who have their own personal health record that they own that they can take with them that captures all of their data.

The other point I would make is network-based products. You take an area like bariatric care -- bariatric surgery for weight loss. We built networks and determined that by looking at those networks, the quality of care and cost was 15 percent lower a year later for those physicians and institutions that were in the network. And they were selected on the basis of quality, good thorough assessment, good counseling for the members, and it was 4 percent higher than the average outside. The use of network-based products is a fundamentally important missing component and tool, and I think that brings us back to public-private partnerships.

The other point I would make is just flexibility, the ability to innovate with things like value-based insurance design so that the insurance products, whether it's a pharmacy or other benefit, is really -- has the ability to adjust the co-pay based on that individual member's health circumstances. Prevention for you may be different than prevention for someone else and we need the ability to have variable definitions of prevention based on the clinical circumstances.

And finally, there's a whole set of missing decision support tools that give a member alerts on health screenings that they should be having, an ability to give an alert to the member and an alert to their physician that there seems to be a gap in care based on the evidence-based standards.

All of those things represent standards that have been innovative in the commercial health care sector that are readily available and that are unavailable in base Medicare today, all of which contribute to improving quality and reducing cost.

DR. TOOKER: Just want to make the follow-up point -- this is John Tooker from American College of Physicians -- about CMS. It looks to us -- to me, at least -- that we're going to be trying to test multiple models of payment as well as multiple models of health care delivery. And CMS is going to be a crucial (aid ?) to the testing of those models.

And it seems to me that there may be opportunities to improve the relationship of Congress, the White House and CMS so that their common expectations at the time that legislation is developed all the way to the implementation of those through CMS.

Just looking at the Medicare patient-centered medical home demonstration project that was authorized in 2006 and it is not yet started, whereas in the private sector at the state levels, both Medicaid and the private insurers are well down the road of testing models of the patient-centered medical home, and there are lessons to be learned from that and partnerships of CMS with those entities that, in our opinion, would help improve the ability of CMS to implement.

Second is the distinguishing between pilots and demonstration projects and, where possible, to take the lessons learned from pilots and implement them as soon as possible, as opposed to having to go back through an authorization after a demonstration project, which takes an additional period of time.

MR. UMBDENSTOCK: Okay, Mr. Chairman. Just briefly, I'd be remiss if I didn't suggest we look at the regulatory side as well and the burden that that causes. The amount of regulation that hospitals live under today really has to be examined and rethought and redesigned.

In the case of CMS, it's additive and I think we have to figure out how to replace the old with the new. I'll give one example and be brief -- the Hospital Quality Alliance: terrific move to publicly report on nationally agreed-upon measures. As I said earlier, hospitals have signed on and are very anxious to get their data back.

The agency has to be able to process that data in a realistic time frame and get it back, so it needs the resources in order to do that. It needs the resources in order to display that data if the public is going to use it to make decisions.

At the same time, though, getting that data out of the hospital and off to the data processors and to CMS has taken significant resources, especially nurses to comb through records where we need that done. And we've not seen any relief on regulation on the payment side or anyplace else. There's never a substitution of one priority for another or one regulatory burden or cost for another.

Those substitutions we're trying to make every day at home on the front lines.

I think we need to think about how we can help CMS think that way as well.

SEN. BAUCUS: Senator Schumer?

SEN. SCHUMER: Well, thank you, Mr. Chairman. First, I want to thank you. This has been a great morning; I've watched a little of it on the TV from my office and been here. I'm sorry I can't be here the whole time.

I'd like to focus on the public plan option which has had some discussion but nothing direct. And some of the witnesses here today who've offered criticisms of the public plan option also strongly support the new payment and quality initiatives -- medical home, accountable care organizations, bundled payments.

And I don't see -- I think there's almost -- at least in some places almost a knee-jerk saying you can't do this -- you can't have a public option, where it seems to me we should take the best of these ideas and use them in a public plan option.

Public plan option is now -- you know, could be formed in many different ways. There's a whole lot of rhetoric, you know, on the public plan option, but we haven't even defined what the insurance product will look like, how it pays doctors, how it pays hospitals, what part of the federal government will be running it. It could be in CMS. It might not be.

So I'd first ask everybody to keep an open mind. We all agree that reform must occur. We need higher quality. We need better care. And I think a public plan option could help make that happen.

To Mr. Korn, here's what I'd ask you and then ask others to comment. You criticized the concept of public health plan in the association's recent advocacy. And I wonder if there isn't a way to work together on this important component of health care -- that's what my question is -- or if the opposition that your association has is simply about protecting a monopoly over small group and individual market? If the field was level -- the playing field was level in rules and requirements that private plans and the new public option plan had to live under in the new health exchange, why would you oppose it?

DR. KORN: Well, we're --

SEN. SCHUMER: Competition's healthy, right?

DR. KORN: Competition's healthy. We're always open to discussion and I think that no door is ever slammed shut. Some of the fundamental concerns, though, that I think we have to deal with realistically is that a federally sponsored program would not have to have reserves, doesn't pay taxes. It's very hard to imagine what a level playing field would look like when the ultimate competition is an economic proposal to a potential purchaser.

So there are many issues to be thought through here before we can agree to how that might work. Certainly we do want everyone to be covered and certainly there are those who under no circumstance could afford any option and we think there's a role for the federal government in filling that gap if possible if they weren't willing to subsidize premiums to those of use who are in the commercial sector.

So the level playing field is somewhat difficult to envision given the requirements of private insurers and I wonder if maybe Mr. Williams would have any further reflections on that?

SEN. BAUCUS: I might say, too, that the next session's going to deal with coverage, which is a more appropriate forum for this particular subject. That's fine to bring it up now, but this session is designed more for delivery system reform. The next session's going to be coverage and all the various ways we cover our fellow Americans, but I'm glad you raised the point, but we don't have the panel yet to --

SEN. SCHUMER: No, I know --

SEN. BAUCUS: -- (inaudible) -- on that, sir, but I --

SEN. SCHUMER: But even --

SEN. BAUCUS: And I want to also say that -- and as you're saying, Senator, that my judgment is the public plan option should be on the table along with everything else. Nothing's off the table, because we have such a terrific opportunity here to move forward together.

And one of the beauties of all this -- it's tremendous when you think about it -- we're being strategic here. We're coming up with a plan which will take several years to implement and to take effect and help reduce costs and help improve quality health care and help improve coverage.

Instead of Congress going down the usual road of every year a little bit here, a little bit there -- pushing the balloon here and it bubbles up someplace else -- this is exciting. I mean this is strategic. This is a whole new approach that -- not only to health care reform -- that we've taken in Congress for a long, long time.

That's why I want to keep everything on the table. Everybody keep an open mind. There's always a way to skin a cat. There's always a way to work out something here. And it's give and take everywhere, but -- and then the public option is clearly in that same category.

SEN. SCHUMER: No, I appreciate that, Mr. Chairman. All I was -- the point I was making to Dr. Korn is it might be that for a private, nonprofit insurer, private for-profit insurer a public plan might work to your advantage. I mean, you know, I know everyone thinks, well, I'm going to get this segment of the market and this is the segment I want, but part of our job is to make sure you cover other -- and it is true -- it's related to coverage, but it also is related to innovation and cost savings and things like that.

And, to me at least, I would never -- there may be some people who say only have a public plan. That makes no sense. But it equally makes no sense to sort of push off the table, as the chairman said, to have a public plan, even in your own self-interest. And admittedly, our interests and your interests are not always the same.

Do you want to say something to that, Mr. Williams?

MR. WILLIAMS: At this point I would just say the chairman has spoken and we understand it's all on the table.

SEN. SCHUMER: Everyone agree with that? (Laughter.)

SEN. BAUCUS: It's on the table.

MR. IGLEHART: The table is full, yes.

SEN. BAUCUS: Everything's on the table. (Laughter.) Everything's on the table with the single exception of single payer. I don't think single payer's on the table. This country's not going to adopt single payer -- at least not at this time, I don't think. Anything else is clearly on the table.

I have a question on behalf of Senator Kerry. He's unable to stay for the hearing. I'd like to ask it on his behalf. He asks: "Medicare Part A and Part B have different payment structures that often result in silos and discourage care coordination. Some of you on the panel have discussed the need for bundled payments. Can you elaborate on this concept? What else besides bundling can be done to better coordinate care between services covered under A and B?"

We discussed that a little bit, but why doesn't somebody just sum it an answer to that? Anybody wants to take a crack at that, on behalf of Senator Kerry?

MR. IGLEHART: Mark?

DR. MCCLELLAN: We've talked about a number of different approaches to try to get payments aligned to better support results and care at the patient level, patient-centered care notion. The medical home can help with that by giving primary care providers more of an opportunity to bring together different pieces of health care delivery. The bundled payments, by bringing more alignment between physicians and hospitals and post-acute providers -- all of these kinds of things move in the same -- have the intent of moving in the same direction.

I'd add to that the notion of accountable care organizations which we've talked about. That's at a bit higher level -- trying to get some recognition of the importance of better results truly at the patient -- at the person level, the population level and trying to get costs down at that level as well.

As you heard from the -- many of the providers here today, with hospitals, physicians, all working in a very fragmented way today, you've got to be careful about how you move in this direction and it may require some extra support in the short term to get there, but it seemed like, from this panel, there's a lot of support for recognizing that if we can do a better job of having payments that support coordination of care and person-level results that'll help us get the kinds of delivery system changes that we want.

SEN. BAUCUS: Okay.

MR. IGLEHART: Mr. Morris.

MR. MORRIS: I also think we'll need to look at the current fraud and abuse laws to ensure that the effort to align the interests of hospitals and physicians isn't blocked by current laws, which in many cases inhibit those sorts of changes. There are civil penalties, Stark law and the kickback statute all in play, here. And we'll need to look at those to ensure that they aren't inhibiting positive innovation.

SEN. BAUCUS: Right. I hear that.

MR. UMBDENSTOCK: Three things, Mr. Chairman, quickly.

First of all, conceptually we understand where this is trying to go and why. It hasn't been tried broadly -- demo's just starting. I think we need to learn a lot and bring it back to the Congress and decide what needs to go forward, what's the best way to move.

Secondly, to underscore what Lew Morris just said, we need some legal review, if not legal relief, so that hospitals and physicians can work together more closely -- clinically integrate so that we deliver on a higher quality product but understand that the legal barriers have been lowered.

Thirdly, as we talk about bundling as it's presently being discussed around acute and post-acute -- there's no common assessment tool to figure out where to put the patient in different post-acute facilities. Work has begun on that. We need to know more about that and how to do that properly -- from the patient's point of view but also the provider's.

And lastly, we have in that same realm, in the post-acute, numerous regulations that restrain or constrain where a patient can go or how many patients can go to what type of facility from what type of facility. We've got to think about lowering all of those barriers if we're going to truly pay as one and operate as one. And that's going to take -- I think that's got to be considered as well.

SEN. BAUCUS: Thank you.

MR. IGLEHART: Dr. Naylor.

MS. NAYLOR: On the idea that everything should be on the table, I hope that we will consider in the payment options an opportunity for accountable entities, defined by local communities, that are strategically targeted and designated to provide services to this 20 percent of Medicare beneficiaries who need more than the medical home or the primary care services will provide and who will not necessarily be well-served by a bundled payment delivered to hospitals.

So I hope that we can think about what our evidence suggests is an appropriate approach to improve the care, reduce their readmissions and achieve health care savings.

SEN. BAUCUS: Okay.

MR. IGLEHART: Mr. Hackbarth.

MR. HACKBARTH: I want to take a little bit different tack. The silos in health care delivery that we've talked about are not so much a function of the separation between Part A and B, but rather a function of the payment systems that we use within them.

I think the relevance of the A/B distinction is more at the financing level -- how the revenues are raised to finance the program. And so, you know, I think we need to bundle payment across A and B, but I don't think the current A/B distinction is a barrier to doing that. So I would urge to you to think about A/B issues as matters of equity and financing. Is this the way we want to raise the revenues to finance a Medicare program.

MR. WILLIAMS: I think the -- one other point -- couple of points I'd make -- one is, as we think about the process of bundling we need to make certain that we don't lose sight of patient preference as they go through the course of treatment, because as you bundle the payment the patient may at some point in that process choose to have different ideas about where to get care or how to get care. And so I think all that needs to be contemplated as this process evolves. I think it's a very good process, but what -- we need to not lose sight of that.

I think the other thing I would say is to have flexibility in the model. I think there's a question about, is it a hospital model, a physician model, or even a health plan model? And all of this is going to require health information technology, software, data. For example, biometrics could be a huge component of providing better care outside of the hospital in collaboration with nurses and others in the home, along with telemedicine and other capabilities. And so I think if we want to explore this we should have broad, general ideas that give us an ability to figure out what works experientially.

MR. : And Mr. Chairman, as you know, how this plays out in the rural community with differing arrays of service capabilities is something for us to think through as well.

SEN. BAUCUS: That's right. We talk about rural -- I reminded there's rural and there's rural -- (laughter) -- in this country. It's -- anyway, rural in the East is an interesting concept.

MR. IGLEHART: A number of the --

SEN. BAUCUS: Rural in the West is really rural.

MR. IGLEHART: A number of the panelists have brought up the subject of hospital readmissions, mostly in the context of expressing concerns about them. But I'd like to ask Mr. Umbdenstock, representing hospitals, to give us the AHA view of that in terms of an issue and how to address it.

MR. UMBDENSTOCK: I'm sorry, we were finishing up on the last topic. Can you --

MR. IGLEHART: Readmissions and the AHA view is in terms of how to address it.

MR. UMBDENSTOCK: Well, first of all, a readmission is not a readmission is not a readmission. In the way the term is being used today, some apply as a readmission, a second admission off of a common diagnosis or episode. Others are just talking about new admissions with in a specific period of time. And so our concern isn't over eliminating unnecessary or preventable readmissions; we want to do that. But when everything gets lumped into the same bucket it becomes problematic.

We think that on the readmissions we really need to focus on those that are related to the original admission and that were unplanned as part of the patient's course of treatment. If we can focus in on those -- and like other subjects here today -- focus in on those that are most common for different types of patient conditions we think we can make some significant progress on that. But lumping them all together as readmissions is a problem.

Secondly, a current proposal says that the bottom quartile or top quartile, whichever direction you want to come from, but some sort of quartile cutoff -- there's always going to be a final quartile.

And so, we've got to look at a better way, because even as we improve on readmission rates, the notion that there's some continuing penalty hanging out there doesn't make a lot of sense to us.

SEN. BAUCUS: Mr. Diaz, you've been --

MR. DIAZ: Yes. Just one further point. I appreciate -- and I think it's very important that post-acute care is being incorporated in the discussion of potential bundling opportunities. I think that there are great opportunities there. And I think it is the right goal to talk about better care coordination and improving efficiencies or inefficiencies within the system.

I think it's been suggested an incremental approach is best. There's a lot yet we have to learn in terms of the comparative effectiveness, in terms of different post-acute sites. And I would also say that part of what needs to be considered or which entities in addition to acute care hospitals are best vested with that responsibility.

And lastly, I think that, as also been talked about, we need to make sure that incentives are alighted to build that infrastructure that's necessary to operate in a bundled payment environment -- to assure quality, to assure care coordination and that that happens all across the country in rural communities as well as metropolitan communities.

SEN. BAUCUS: Dr. Steele.

MR. STEELE: Yeah, I think that the readmission is a metric that you could easily apply to your goals for chronic disease management improvement. And I think that what would be a terrific engine for getting there is to go to systems that might not be the usual delivery system and see what the best outcome is. And then you essentially say, how do we generalize into a much more fragmented system and work with the AHA and other community-based organization to figure out how to bridge the gaps that are going to be there for quite a while, since everything doesn't look like our integrated system? But I think that -- I think there are ways of getting there in a short period of time doing dissemination from best practice.

SEN. BAUCUS: This is very interesting. This is -- you know the game Whac-A-Mole? (Laughter.) Every once in a while I see another card go up here. (Laughter.)

Okay.

MS. NAYLOR: I just want to say, from the patient a family caregivers' perspective a hospital readmission is a hospital readmission. It is an extraordinarily tremendous human burden to them. And we have the capacity --

SEN. BAUCUS: True.

MS. NAYLOR: -- to reduce readmissions for Medicare beneficiaries between a quarter and a third -- avoidable readmissions. And I think we are only going to succeed when we realize that the care needs of these people are much more complex. It's not just about medical management; it's about managing the community services, it's about managing the inadequate social support, all of the factors that contribute to poor outcomes. We need a comprehensive, holistic approach. We need a team model to get there. And we have evidence to guide us.

SEN. BAUCUS: Yeah. I experienced a little of this. My mother was in the hospital a few years ago and -- was a colon matter -- put in a post-acute facility and she had to go back in the hospital again, because it got worse. And I know that a lot of it was because she was not cared for when she left. I mean, with her meds and everything under the sun, but there just -- I could just feel the disconnect there when I was visiting her. And so when people talk about all this I -- my mother's real.

MS. NAYLOR: Yeah. Yes.

SEN. BAUCUS: It happened. She's fine now. She's great. But it was a bit -- it got --

MR. IGLEHART: I have a final question if you have any --

SEN. BAUCUS: Sure.

MR. IGLEHART: I think back a generation to the Republican administration of Richard Nixon and the proposal that he put forward that really proved to be transformational -- government support for the creation of what was called pre-paid health plans at the time and then became known as health maintenance organizations. And of course it went on to evolve into managed care, and we all know what happened to that. But my question is really based on the concerns of the committee and the Congress about the unsustainability of Medicare and Medicaid and the current cost trends, whether the proposals that we've discussed today are broad enough, are fundamental enough to really address the magnitude of the problem. And I'd be interested in comments or even written comments to the committee if time has elapsed.

SEN. BAUCUS: Well, thank you, John. I think it's an excellent question. And I'd like panelists to think about that, frankly. But before we get to that point, I want to give panelists an opportunity to say anything that has not yet been said. Maybe somebody said something outrageous that needs to be addressed. (Laughter.) Or maybe there's a nagging little something in the back of your head that you'd kind of like to get out. But here's the opportunity now.

We're going to be going through something we call a walk-through a week from tomorrow. It won't be a markup of legislation on this subject -- delivery system reform -- again, we're dividing this into three areas: delivery systems, one; coverage second; and payments third -- how we pay for it's third. But on Wednesday we're going to do something we call a walk-through. That is, the committee will walk through tentative, suggested, potential legislation with respect to delivery reform. Then we put all these three together in June, have a markup in June.

So during this next week we'll be talking to you. We'll be calling you up for some follow-up, because you've given a lot of solutions, a lot of suggestions here, which I think make a lot of sense. But you've also raised a lot of questions, at least in my mind. I made notes and how do we do this and how do we do that, and so forth. But I just want to thank you very, very, very much. This has been one of the most productive sessions I've ever participated in since I've been in the Senate. I mean, everybody is right on target, no grandstanding, nobody's playing to the crowd. (Laughs.) This is why we came here. We came here to do good, public good, public service. I know I speak for all members of the community in saying so, and I know I can speak for all of you, because you're in a field providing a service to people. And I just want to compliment you very much.

And I'm -- as I said at the outset, I'm very excited about this. We're going to go somewhere. Something big is going to happen here. And we're hearing the takeoff and just keep working and we're going to be also all together on the landing, which will be hopefully a soft landing -- (laughter) -- and one which will provide a lot of care at lower cost -- better access to the American people -- make us all very, very proud, so thank you very much, unless somebody wants to finish with some comment, some statement, some something that he or she thinks should be addressed.